Make a New Year’s Resolution to Review Your Estate Plan in 2013

by Partridge Snow & Hahn LLP

Each year, at this time, we remind our clients of the importance of keeping their estate planning documents up to date.  With the avoidance of the tax side of the “Fiscal Cliff” and the passage of the American Taxpayer Relief Act of 2012 on January 1, 2013, there have been significant changes to federal transfer tax laws.  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 personal goals.

  • The federal tax exemption amount for estate, gift and generation skipping transfer tax purposes is set at $5,000,000 for 2011 and will be adjusted for inflation each year thereafter (an exemption amount of $5,250,000 applies for 2013).  This is a significant increase from the $1,000,000 exemption that was scheduled to occur in 2013 absent the enactment of the American Taxpayer Relief Act of 2012.  Additionally, as a result of the new legislation, portability of exemptions for married couples is made permanent.  Many estate plans take full advantage of the federal exemption by directing that assets valued in the amount of the exemption will pass directly to your children or to a credit shelter trust under which your spouse has limited access. The significant increase in the federal credit and portability may cause you to reconsider your options.
  • The significant exemption amount gives many individuals a continued opportunity to make large gifts and save on estate taxes.  Additionally, the annual gift tax exclusion amount is increased from $13,000 to $14,000 per year, per recipient.  This means that couples may gift up to $28,000 per year without incurring a gift tax or using a part of their annual lifetime exemption amount.  You may wish to consider your gift tax planning options.
  • Despite the current federal estate tax exemption of $5,250,000, most states impose an estate tax on estates with assets valued at far less than this amount. For example, although there is no state estate tax in Florida, both Rhode Island and Massachusetts impose taxes on decedents’ estates that exceed an exempt threshold.  The Rhode Island threshold is only $910,725, and the Massachusetts threshold is $1,000,000. This difference between the state and federal exemption amounts may warrant a review of your documents to ensure that your estate plan minimizes taxes by capturing both the state and federal exemptions.
  • During 2012, Massachusetts legislature enacted the Massachusetts Uniform Probate Code and the Massachusetts Uniform Trust Code, which significantly overhaul the previous probate and trust laws and provide greater flexibility and simplicity with regard to estate and trust administration matters.  If you are a Massachusetts resident, you may wish to review your current estate plan with your attorney to discuss how your estate plan may be affected by these changes.
  • Additionally, the death of a named beneficiary may be reason to review your estate plan to ensure that his or her share passes to the proper beneficiaries in accordance with your wishes.
  • Likewise, if your family has grown with the addition of children or grandchildren, you may wish to make special provisions for them, such as expanding bequests to your new family members, or ensuring that assets left to minor children or disabled individuals are done so in trust, to be administered by the appropriate fiduciaries.
  • 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?
  • If any of your beneficiaries has been diagnosed with a disability, you may wish to review the manner of disposition to that person. Would disposition in a protective trust, such as a spendthrift trust or special needs trust, be more appropriate?
  • Marriage and divorce can significantly alter the disposition under a will or trust by operation of law, and may cause inconsistencies between your documents and your intentions. If there has been a marriage or divorce, either by you or by one of your beneficiaries, you may wish to revisit the choices you have made in your estate plan.
  • Your estate plan takes into account the size and nature of your assets at the time you executed it. Have your assets changed significantly, such as conversion of real estate or a business interest, or through inheritance of additional assets? If so, you may wish to review your estate plan to make sure these changes have been taken into consideration.

You probably have put a significant amount of time, energy and emotion into your estate plan.  If you do not have an estate plan, why not make 2013 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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