Have you checked your will lately–or your spouse’s? If not, there may be a trap lurking in the language that could cause an unintended calamity after death.   That’s according to the Wall Street Journal.

Here’s why. Since 2001 the federal estate tax exemption has stepped up from $675,000 to its current level of $3.5 million per individual or, with planning, $7 million per couple.

Customarily, lawyers have put a “credit shelter” or “bypass” trust provision into the will of each partner in a married couple. This allows the couple to take full advantage of both individual exemptions. At the death of the first spouse, some assets go into a bypass trust that the other can draw on if necessary. These assets escape tax at the second spouse’s death and pass directly to heirs.

When the estate tax exemption was $2 million and below, bypass trusts were especially important to those who were affluent but not hugely wealthy. Used properly, they helped shelter the greater part of a couple’s assets from estate tax. If each spouse instead left all his or her assets outright to the other, in many cases the value of one exemption was lost and unnecessary taxes had to be paid upon the death of the second spouse.

The current trap mainly affects those couples who benefited most from bypass trusts in the past—those with up to, say, $4 million in assets. The problem lies in the wording of many wills drafted even a few years ago, which often directs that the “full amount” of the estate tax exemption go into the bypass trust when the first spouse dies. If the language of the will hasn’t changed while the exemption has grown, the bulk of a couple’s assets could in some cases wind up in a bypass trust after the death of the first spouse, leaving the survivor with little or nothing outright.  Now that’s a scary thought.

Click on the link below to read this article in its entirety.

http://online.wsj.com/article/SB10001424052748704107204574475191568801238.html

I was reading the Wall Street Journal today and came across an article I thought was important and timely, so I decided to share it with everybody.  It discusses the absolute necessity of having an Advance Medical Directive in place as part of a well structured estate plan.  You need to be in charge of your own affairs and your own future.   Both financial and medical.  It is so easy to procrastinate and not take care of this absolutely critical piece of personal business.  Check out this article and see if you do not agree with me. 

http://blogs.wsj.com/juggle/2009/08/20/make-time-to-create-an-advance-medical-directive/

An updated and meaningful Advance Medical Directive is critical.  Do not leave home without it.

Simply stated, your estate is the value of all the assets you own when you die.   And of course for decades now, the U.S. Government has been levying a tax on those assets.  This year, the U.S. Congress has been discussing the revision of the Federal Estate Tax as part of their efforts to arrive at a final budget for the upcoming fiscal year.

Whether Democrat or Republican, both sides of the aisle are pushing to reach a compromise solution before the end of 2010.  Because of complicated rules going back to the 2001 tax-cut act, the estate tax rates at which Americans are taxed is wildly inconsistent. The estate tax rate for people dying in 2010 is presently zero. If your going to pass away, and you don’t want the government getting any of your accumulated estate, then 2010 is your year. You get a free pass.  But then the rate jumps back up to a whopping 55% the following year in 2011 and thereafter. For every $100 dollars you die with, the federal government will grab $55 and leave your estate with only $45.  

Republicans generally like the 2010 rule; it rewards financial success and reinforces the American dream. Democrats prefer the 2011 tax rates; they feel entitled to slice off a big chunk of your financial legacy and redistribute it to others of their choosing. Elected officials on the left see an increased estate tax as a potential way to drum up significant tax revenues that can be spent on their favorite social programs. Folks on the right see an increased estate tax rate as an unfair double taxation (taxed when you earned it; taxed again when you die) that penalizes hard working and successful people who are trying to build a financial legacy which they can pass down to their children and families.

The problem I have with the estate tax is that it tends to vilify financially successful Americans by singling them out to pay a tax that other citizens with less assets aren’t asked to pay. It seems fundamentally unfair to punish someone just because they are smart, successful, hardworking or just plain more lucky than the next guy or gal.  We all pay sales tax,  income tax, and property tax; but only the successful Americans get gouged with an additional estate tax.   In my opinion the estate tax is fundamentally unfair and smacks of class jealousy.

What’s more, from a purely economic point of view, the federal estate tax actually discourages savings and investment in America’s future. It sends the wrong message to America’s entrepreneurs, investors, small business owners and farmers. It tells them, “if you spend your money as quickly as possible while your living”, then the government won’t tax your estate when you die.” But if you behave responsibly, and save and invest in your family and America’s future, and build up a nice sizable estate to show for your efforts, when you die, the feds are going to rush in a grab a large chunk of your life’s legacy away from your surviving family members.  That is just so wrong.

There are also statistics that show that the estate tax is a job killer in America, but I’ll save that discussion for another time. Nations as diverse and different as Australia, Russia and Sweden have done away with the estate tax as an unfair levy. Give me a dollar, I’ll grow it into five. Give the government a dollar, they will quickly spend it and then stick out their empty hand demanding more.

An effective Estate Plan can help you minimize your estate tax liabilities and allow you to pass on more of your estate to the people most important to you. Control what is yours.  Protect your family’s legacy. Call our office today to schedule an estate planning consultation.

If you can afford to live without it, you might consider delaying your receipt of Social Security Benefits for a few years.  Some Social Security recipients can voluntarily suspend their benefits beyond the so-called full retirement age of 66. This is referred to as “claim and suspend.” Here’s how it works.  For every year between the full retirement age and the age of 70 that  recipients delay taking their benefits, the Social Security Administration with increase their later monthly benefits check by 8%.   Now an 8% increase might not sound like much, but in the end every little bit adds up.   If you would like more specific details on this strategy, go to the Social Security Administration web site located at ssa.gov/retire2/agereduction.htm.

Estate planning is about a lot of different things.  It is about your lifetime of hard work.  It is about protecting what you have accumulated over the years so that you control who gets your assets after you are gone.  But in simplest terms, estate planning is about protecting your personal liberty from unwarranted governmental encroachment.   It is a matter of principle.  The liberty to self determination;  the liberty to control ones’ lawfully accumulated wealth; the liberty to control the disbursement of ones’ property.   These are the essential values of a free society.   A good solid estate plan protects liberty and reinforces these fundamental American values.

Of course, there are some of our fellow citizens who need our charity.   Charity is a worthy and noble act.  But charity should not be a government mandate.   It should not be coerced by governmental authority in the form of excessive gift or estate taxation.  A well-crafted estate plan will provide for your charitable intentions while keeping you in charge of your assets and your legacy.  We must protect the  liberty of each individual to make ones’ own choices as to how their estate is distributed.  What could be more basic to the American ideal than the right to self determination of ones’ own legacy?