You may have created your first will early in life when you started a family or after losing someone close to you. Though you may have had good intentions of keeping your plans up to date, your busy lifestyle may have overshadowed the urgency. Today, with important decisions to make about where to distribute your hard-earned assets, it is especially important tom make sure your plans reflect your current wishes. The following list of common mistakes is a gentle reminder of how truly important it is to keep your plan in shape.
Don't Make These Mistakes
Overlooking changes in your family situation. Your marriage, divorce or remarriage, the birth of a child, or the death of your spouse are obvious reasons to revise your will. Failure to make changes or updates to your will may result in disinheritance or financial hardship for loved ones who depend on you.
Overvaluing or undervaluing your estate. If the value of your assets has changed substantially, you may want to change the size of your bequests to your family and favorite causes. Otherwise, some beneficiaries may receive amounts that are either too small or too large in comparison to the current size of your estate. The preferred strategy is to use percentages, not dollar amounts.
Not keeping your estate plan current with changing tax laws. Last year in 2010, estate taxes were originally repealed. Then Congress made changes allowing the estates of those who died in 2010 to use the tax structure under the repeal or under the $5 million basic exclusion that applies for 2011 and 2012. In 2013, the exclusion amount will drop to $1 million, unless further tax law changes are made.
Stay Current
In addition to the change in the estate tax law, check with your attorney to see if your estate is affected by any of these other 2011 tax law changes.
The carryover cost basis tax structure for inheritors was originally applicable for all 2010 estates. But under the new law, 2010 executors must elect for carryover basis to occur. Carryover cost basis means those inheriting assets receive them at the same cost basis that the deceased had originally paid for the assets. In 2011 and 2012, beneficiaries inherit assets at a cost basis equal to the fair market value as of the date of the deceased's death, or, in some cases, six months later.
Like the basic estate tax exemption, the exemption level for generation-skipping transfer taxes is also $5 million with a federal tax rate of 35 percent. This means that if you leave more than $5 million in property to a grandchild or anyone two or more generations younger than you, your gift will incur additional tax. This $5 million exemption is only applicable in 2011 and 2012, as well.
The top gift tax rate is 35 percent with a $5 million exclusion amount unified with the estate tax exemption. The annual tax gift exclusion -- the amount you can give to anyone gift tax-free each year -- will remain at $13,000 in 2011 ($26,000 for married couples).
Income and capitol gains tax rates will remain the same for individual taxpayers in 2011 and 2012.
Your Next Steps
Review these changes with your estate planning attorney to find out if any revisions to your plans are necessary and to learn about smart tax planning options that can help you leave more for your loved ones. Remember, a well-planned, up-to-date estate plan can ensure that your assets will be divided among family and other beneficiaries fairly, economically, and as you intended. If an estate plan update is in store, consider using that time to include a gift to the Geneva Foundation of Presbyterian Homes. Contact us at 877-440-4001 or genevafoundation@presbyterianhomes.org to learn about your options.
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