Estate Planning: One Size Doesn’t Fit All – Part I (Over Planning)

With the increase of software packages and online companies that provide forms to complete your estate planning many people think their wills or trusts should be “one size fits all.”  Unfortunately, there are very few things in the law that apply equally well to all people and all circumstances and estate planning is no exception.  Instead, it is important to be thoughtful about your approach to estate planning because—if for no other reason—you will no longer be around to clear up any misunderstandings or difficulties created by poorly crafted documents.

In 2013, the American Taxpayer Relief Act (“ATRA”) was signed into law allowing US citizens to give up to $5.0m dollars ($5.45m[1] in 2016 after being indexed for inflation), at the time of their death without any estate taxes being owed.  This marked a significant increase from the $1m dollar exemption that would apply if the ATRA was not passed and marked a change in estate planning for the majority of clients.  First, the exemption amount meant that a much smaller percentage of clients needed to engage in estate tax planning.  Second, changes in the rates for capital gains taxes placed estate tax planning at odds with long-term income tax planning.  The result: We frequently see client with estate plans that are more complex than is warranted by their circumstances, giving plans and/or assets levels.

As alluded to above, overly complex planning to deal with estate taxes may have a negative impact on the amount of income taxes that are ultimately paid on the property you leave behind. Possibly more important, overly complex planning tends to lead to more expensive and complex legal issues when administrating your plan.  The various trusts and entities that were conceived in a time when the estate tax exemption was much lower, your asset level was higher and/or your circumstances were more complex may no longer be applicable.  Accordingly, it is important to remain vigilant regarding the size and complexity of your estate plan and tailor those plans to the law and your circumstances as they exist now.

[1] https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Whats-New-Estate-and-Gift-Tax

Royce Lanning

Phone: 281-367-1222

Fax: 281-210-1361

[email protected]