Friday, September 4, 2015

The New Estate Planning: It's All About the Family!

What is Estate Planning Really About?

Are you like 70% of the folks out there who don't like to think about or hear about wills, trusts and estate planning? Well, if you are, don't fret. Many people believe that estate planning is only for the rich. Not only is that false, wills and trusts actually do more to protect people who don't have millions of dollars and property.

Why estate planning is not for the rich folk!

As the preceding article from one of the top companies in the world reveals, estate planning is about your family. Creating certainty, protecting your spouse and loved ones, protecting children, it's ALL about your family.

So how did the myth start that estate planning was only for the rich? It dates back to when the federal exemption against the federal estate tax (some call it the "death tax") was very low. Do you know the history of this exemption? The exemption is used by the government to define when YOU are wealthy (rich) enough to have to pay estate tax when you die.

The History of the Federal Estate Tax:

Thanks to the good people at Cook & Cook, here is the history and it's shocking.

History of the federal estate tax exemption and rates:

Let's start with the year 1978, the year I started practicing law. The federal estate tax exemption (the definition of wealthy) was a mere $134,000! If your estate was greater than $134,000, you paid federal estate tax and if you look at the chart, the marginal rate of that tax was a horrifying 70%! As you can see from the chart, the exemption has increased over time, not even coming to close to keeping up with the economy or inflation.

So here is where the myth about estate planning started--we were all concerned as estate planners with reducing or avoiding this tax, the highest tax ever imposed on citizens of our country. When the exemption was low, the focus was estate tax planning. Most people were so incensed about the estate tax that they didn't pay proper attention to the real reason for estate planning--protecting the family.

The Federal Estate Tax in 2015:

So where are we today? In 2015, the exemption against the federal estate tax is $5,430,000 and is scheduled to increase in 2016 to approximately $5,515,000! Now that's more like what someone would expect as a real definition of wealth.

With the exemption against the estate tax at this level, the old, historical focus on estate tax planning is less relevant for most families. As you might think, far fewer families have estates over $5,430,000 than that old exemption of only $134,000. Because the exemptions are at historically high levels, the focus for most families is on protecting the family.

Most common is the desire to protect the spouse, then children and then other family members. I have always believed that protecting family should always be the driving reason for a client's estate planning and this focus should be reflected in documents such as wills, trusts and powers of attorney.

Good estate planners never let the tax tail wag the family dog! That's a good rule of thumb to remember when you think about your estate plan. Just because taxes are not a concern doesn't mean that we don't care about our families. We do and here are three short videos that illustrate just how important this is.

Estate planning for young families:

Estate planning for children over 18:

Estate planning for blended families:

So when someone says to you, "I don't have enough money to do a will or estate plan" share this article with them so they can have the full story.

Let know your thoughts on this and please join our conversation by commenting or sending me an email. Thank you for your interest.

Bernie Greenberg

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.