Make a New Year’s Resolution to Review Your Estate Plan in 2015

Partridge Snow & Hahn LLP

Each year, at this time, we remind our clients of the importance of keeping their estate plan up to date.  Estate planning goals change over the years for many reasons, including the birth, marriage, death or disability of a family member. Financial reasons which warrant the review of your estate plan may include significant changes in net worth or changes in the nature of your assets such as the sale or purchase of real estate or a business.  It is important that your estate planning documents reflect your current goals.  This includes the beneficiary designation forms for your contractual property, such as life insurance, annuities, and retirement accounts, which will be inherited by your designated beneficiaries regardless of the provisions in your last will and testament or revocable living trust.  In addition, federal and state transfer tax laws offer opportunities for significant tax savings through proper planning.  Clients should consider the benefits of insightful tax planning both during life through lifetime gift planning and at death through testamentary estate planning.

Consider making a resolution to review your estate planning documents to make certain that they are still effective under current law and continue to meet your goals.  Below is a brief reminder of significant laws relating to estate planning, including significant changes for 2015.

  • The federal exemption amount for gift and estate tax purposes for 2015 is $5,430,000 (up from $5,340,000 in 2014).  In addition, the introduction of portability a few years ago allows a decedent to transfer any unused gift and estate tax exemption to his or her spouse.  This ability to “combine” gift and estate tax exemptions results in a total exemption for married couples of $10,860,000 in 2015.  The exemption for generation skipping transfer tax has also been increased in 2015 to $5,430,000 from $5,340,000 in 2014.
  • Although the federal estate tax exemption amount remains high, many states impose much lower thresholds.  Effective for residents dying on or after January 1, 2015, the estate tax exemption amount for Rhode Island is $1,500,000.  The estate tax threshold amount for Massachusetts remains at $1,000,000.  Floridians remain unburdened by state estate tax.  It is important to note that portability does not apply to state estate taxes.  Therefore, individuals with assets exceeding $1,500,000 in Rhode Island or $1,000,000 in Massachusetts must continue to consider transfer taxes in their estate planning.
  • The federal gift tax annual exclusion amount for 2015 will remain at $14,000 per donee.  This means that couples may gift up to $28,000 per person without incurring a gift tax or using their federal lifetime exemption.  Rhode Island and Massachusetts continue to permit unlimited gifts, however.  Careful lifetime gift planning can substantially lessen, if not eliminate, all transfer taxes.
  • For federal tax purposes, same-sex spouses who are legally married under state law are now afforded the same benefits as opposite-sex spouses.  This includes, among other things, the ability to transfer an unlimited amount of assets to a spouse free from estate and gift tax.  All six New England states recognize same-sex marriage.  Same-sex spouses should revisit their estate plans to consider transfer tax planning options that were previously unavailable to them.
  • You may wish to review your designations for trustees, executors and agents in your financial and health care powers of attorney.  Are they still the most appropriate choices?  Has anything occurred in their lives which might change your selection?
  • Individuals who own retirement accounts and do not have a spouse or do not name their spouse as the primary beneficiary of the retirement assets may be very surprised to realize that their chosen beneficiaries may not be able to protect these important assets from creditor claims.  Illustrative of this is the recent decision rendered in June 2014 by the United States Supreme Court in Clark v. Rameker.  This case involved an IRA account inherited by the daughter of the original account owner.  In balancing the competing interests of creditors and debtors, the Supreme Court held that the asset protection afforded retirement assets was intended to protect the original account owner after retirement and enable the retiree to meet financial needs.  This special treatment can also be enjoyed by the surviving spouse of the retirement account owner.  However, the Supreme Court decided that extending this protection to anyone other than the original account owner and his or her spouse went beyond the goal of preserving funds for a retiree’s financial needs.  Because the daughter, nephew, grandchild or best friend of a retiree as the designated beneficiary of a retirement account is not afforded special asset protection, the account owner must consider whether protecting these assets from the creditors and claimants of a non-spouse beneficiary is important enough to undertake an alternative planning strategy.  Being aware of this recent United States Supreme Court decision and how it impacts inherited retirement accounts is a first step.  Becoming accurately informed about the mechanics of an estate plan which includes naming a trust as the beneficiary of your retirement accounts to supply creditor protection is a very important second step.  Only with correct information can you make the best decision concerning your wealth preservation strategy.

You probably have put a significant amount of time, energy and emotion into your estate plan.  Therefore, it is important to make sure your plan continues to reflect your goals.  If you do not have an estate plan, why not make 2015 the year to accomplish your personal planning goals?  Your attorneys at Partridge Snow & Hahn LLP would be happy to discuss these important issues with you and work with you to ensure that your intentions are fulfilled.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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