Use the Millennium Milestone to Review Your Estate Plan - or Make One
By William J. Berrall, Financial Advisor
Morgan Stanley Dean Witter
A new year. A new decade. A new century. We use milestones like these as starting points for personal or professional improvement and for taking care of things we've put off doing. With so many more immediate things to focus on, estate planning is a good example of something on most individuals' to-do lists that has been put off. If that's so for you, the new millennium could be just the milestone you need to begin either planning your estate or reviewing your existing estate plan.
An unplanned estate or an outdated estate plan can be costly. If you don't have an estate plan, the government will eventually create one for you. As you might expect, it won't contain too many tax-saving or wealth preservation strategies for you and your family. If you do have an estate plan but it hasn't been updated in several years, you and your family could incur unnecessary costs because of changes in your life and changes in tax laws.
What factors affect your estate plan as we enter 2000? Here are some items that you should pay attention to when reviewing or preparing your estate plan.
Your growing Net Worth. Securities and other investments, retirement plan assets, your home, your business and your life insurance policies generally are all counted as part of your estate. Your estate may have enjoyed significant gains in recent years and may therefore be worth more than you think. Stock market and real estate increases may have helped propel your estate into federal estate tax territory. (States may levy estate taxes also. Check the tax laws in your state of residence and consult your tax advisor.)
Estate Taxes. The good news is that the amount you can leave to your heirs is free of federal estate tax is $675,000 for the year 2000 an increase from $650,000 in 1999. What's more, this amount will continue to increase to $1 million in 2006. But the bad news is that if your net worth is well over $650,000, this increase is a nominal one that won't help your heirs much when it comes to the federal estate taxes they may face.
Since federal estate taxes represent one of the highest tax rates applied to individuals by the IRS, planning to protect your assets from the eroding effects of estate taxes is a good idea for you and your heirs. It's an even better idea to plan your estate if your state also imposes estate tax.
New address. If you have moved to a new state or acquired a vacation home or other property in a another state, your legal domicile may be uncertain. If you have not clearly established your domicile in a single state, more that one state jurisdiction could successfully tax your estate. A revised estate plan can be created to help protect your assets against this possible double taxation.
Family matters. Changes in you family are often reasons to examine your estate plan. These changes can include marriage and remarriage, divorce, birth, death, etc. Any changes among the family members you have named as heirs should be reflected in your estate plan.
Special health needs. Special health needs that may have arisen in your family since you last reviewed your estate plan could require adding a special provision to your will or setting up a trust.
Disability protection. Disability doesn't only happen to other people. You can incorporate language in a personal trust to help prevent temporary or permanent disability from disrupting your financial affairs.
Business changes. Reviewing your estate plan can help alert you to potential disruptions in or tax implications involving your family business. Whether your business is a sole proprietorship, partnership or closely held corporation, changes in the form of ownership will have a significant effect on the tax and succession situation. A review of your estate plan will also help you determine if your business can qualify for the special small business estate-tax break that began in 1998.
Philanthropic intentions. A growing personal estate may encourage you to give more to charity. Maximizing the control and management of your charitable gifts now not only can provide you with significant tax savings, but can also offer you (and your favorite charities) other financial benefits.
Since you've probably spent years building your estate and raising a family, having an estate plan in place that uses trusts to help protect and safeguard what you've built can make sense. Adding your estate plan to your new millennium "to do" list can help provide you with the peace of mind that your heirs may be spared from estate tax problems in the future.
This article does not constitute tax or legal advice. Consult your tax or legal advisors before making any tax-related or legally related investment decisions. This article is published for general information purposes and is not an offer or solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your circumstances and objectives.
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