Importance of reviewing your will
Although wills of individuals with large estates need to be reviewed in light of the possible changes to the federal estate tax, all wills should be reviewed on a regular basis as explained in Paul Sullivan, Smaller Though It May Be, It’s Time to Look at the Estate, NY Times, March 21, 2009.
Here are some excerpts from his article:
[E]state planning is not primarily about avoiding a tax that few have been subject to since it was instituted in 1916. The primary goal has always been how to bequeath what you have to the heirs you picked. And if handled wrongly, wills can become a vehicle that destroys families. * * *
The biggest issue, given both the recession and the flux in federal estate tax laws, is whether wills already drawn up still fulfill their intent. * * *
Spelling Counts. Whether you have $50,000 or $50 million, you need to be specific about the distribution of your estate. * * *
Flexibility for Bad Times. Irrevocable trusts are a popular way to organize an estate to shield money from taxes. But such trusts essentially take title to the individual’s assets and do not allow you to reclaim them if your financial situation worsens. With the stock market gyrating, putting some assets in a revocable trust — which lacks the same tax protection — gives an executor of an estate more flexibility to manage the assets. * * *
Rebalance Your Will. Just as you should periodically rebalance your portfolio, you need to rebalance your will. To take full advantage of the $7 million exemption for couples, each spouse needs to have $3.5 million of assets in his or her name. Given the across-the-board drop in asset values, spouses may want to rethink who owns what, at least on paper.
Make Gifts, if You Can. Even before the economy crumbled, people were doing less giving while alive. The political debate over the estate tax played a role. * * * The reason is how the taxes are applied. To give a child $1 million while you’re alive (if the exemption is gone), it would cost you $1,450,000. But if you wanted to will $1 million to an heir, you would have to give $1,820,000. Gift tax is added to a gift, while estate tax, also at 45 percent, is deducted from a bequest after your death.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.