Creating and drafting an estate plan is not the easiest thing to do. There are, after all, a great number of things with which one must be concerned, and it’s quite easy to overlook some issues. Most often these issues are overlooked because they either do not address the tax code or they do address the tax code; either way, take a look at this list and see if you have overlooked some of these issues:

The Estate Tax

Don’t jump to the conclusion that your estate won’t qualify for the estate tax. You may be safe today, but, given the way tax laws fluctuate, who knows if that will still be true tomorrow. Ignoring it may cost your survivors a large portion of your estate.

Clearly and Specifically Identify Beneficiaries

The failure to do this can cause all sorts of problems, including litigation. If you name a specific person, does he or she have a name that might be easily mistaken? If you give a class gift, such as “to my children,” does that include adopted children? Specificity counts.

Make Use of Advance Directives

You never know when you may become so incapacitated by illness or injury that you need someone else to make healthcare decisions for you. Drafting a healthcare proxy (it appoints someone to make healthcare decisions for you), a living will (states what medical procedures you’re willing to undergo for treatment), or other such device will help ensure your wishes are adhered to, should you be struck by such incapacity.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Even though the next big political conflict is probably just around the corner, Congress and the President managed to reach a deal over the fiscal cliff that has significant implications for anyone with an estate plan. Though you should speak to your attorney about the specific points of the deal and how they might affect you, here are some of the big highlights.

Your children get $10.5 million tax-free.

Under the terms of the agreement the estate and gift tax provisions imposed by the federal government will still allow for a $5 million exemption for each individual.  Adjusted for inflation, the 2013 amount will be equal to $5,250,000.  Additionally, the law extended the “portability” of a deceased spouse’s unused exemption, meaning that a married couple can effectively pass their children $10.5 million tax-free.

Your estate taxes have gone up.

If you pass gifts over the $5.25 million individual limits, the amount you’ll have to pay has increased. Previously, gifts over the exemption limit were taxed at a maximum rate of 35%, but beginning in 2013, that number climbs to 40%. That rate applies to any gifts given during your lifetime, gifts you transfer through your estate, as well as generation-skipping gifts.

You can give gifts of up to $14,000 per year, per person.

You are allowed to give individuals gifts of up to $14,000 in 2013 and not have those gifts count against your lifetime gift tax exemption. This $14,000 amount applies to individuals, so spouses can effectively give double that each year.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Question 1: What is the GST?

GST stands for generation-skipping tax, or sometimes as it is referred to, the generation-skipping transfer tax. It is a federally imposed tax that applies when people transfer wealth from one generation to another that is at least two generations removed. Essentially, this means it applies when grandparents give gifts to their grandchildren or great-grandchildren.

Question 2: How does it work?

The GST is similar to both the estate tax and the gift tax. When the grandparent transfers wealth after he or she dies, that transfer can be subject to the estate tax if it is over the exemption limit. Similarly, grandparents who transfer wealth to their family while they’re still alive by giving gifts can also be taxed through the gift tax if such gifts are also over the exemption limit.

Question 3: When does it apply?

The GST is designed to apply in instances where grandparents try to skip or avoid paying estate taxes. For example, a grandparent typically leaves an inheritance to a child. If that inheritance is over the exemption limit, it is subject to the estate tax. Then, when the child dies and leaves that inheritance to his or her own child (the grandchild), that too is subject to estate tax. The GST applies when the grandparent tries to avoid the first estate tax fee by transferring the inheritance directly to the grandchild.

Question 4: Do I have to worry about the GST?

Probably not. It only applies in very limited circumstances and only to estates of significant worth. However, the exemption limit is likely to change significantly in the coming year, so you may need to consult your estate planning attorney to see if the new limit now applies to you.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

A durable power of attorney for finances lets you choose someone to take over your financial responsibilities when you become sick or otherwise unable to manage them. Your attorney can tell you what specific steps you need to take to create this important document, but you can get a head start on the process by reviewing our brief checklist.

• Preparation. Take some time to learn about powers of attorney and what they can do for you. Make a list of questions you have and ask your attorney for advice if you can’t decide what you want or need.
• Attorneys-in-Fact. The person who you appoint to manage your finances is called your attorney-in-fact or your agent. Select someone you trust who is responsible and good with financial matters. Though called an attorney-in-fact, the person you choose does not have to be a lawyer. Choose more than one and list the others as alternates who can take over the duties in case the original attorney-in-fact is unable to.  Also, ask each candidate before including their names in the document.
• Powers. Your financial power of attorney can be as detailed or as general as you wish. Make sure you review the document to be sure you agree with all the powers outlined within it.

• Documentation and Execution. Your financial POA must meet the requirements as made by the law. You should schedule a meeting with your attorney to formally execute the document.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Estate taxes were big news in 2010 and the beginning of 2011, as Congress passed a two year “patch” that unified the federal estate, gift, and generation-skipping transfer tax, as well as increased the exemption to $5 million for 2011 and 2012.  An important aspect of this tax act may be lost on those not familiar with estate planning terms, and wasn’t as widely reported – that of portability.

The new portability rules of the tax act allow spouses to “share” their estate tax exemptions with one another.  Portability allows a deceased spouse’s estate to transfer the remaining unused exemption to the surviving spouse. Considering much of their estate may be passed to the surviving spouse with the unlimited marital exemption, this could be quite significant.  The surviving spouse can then add the transferred exemption amount to his or her own exemption, which will increase the amount that can be transferred, federal estate tax free, to beneficiaries upon their passing.

For example:  John passes away in August of 2011 and leaves a $1 million taxable estate to his children.  The remaining $4 million of his exemption is transferred to his wife, Mary.  Mary passes away in 2012, her exemption is now $9 million (her $5 million + John’s remaining $4 million).   However, portability is not automatic; there are special filing requirments at each spouse’s death to preserve portability.

Sounds like there is no worry for estate taxes for most people with $10 million exempted?  Unfortunately, that is not the case, as under current legislation, this portability option only works for couples who both pass away between 2011 and the end of 2012.  We are still unsure of what 2013 will bring in the way of estate taxes and portability.

Don’t allow the portability of the current estate tax laws to be your excuse for putting off estate planning.  There is certainly more to it than simply planning to avoid estate taxes, and an estate planning attorney can work with you to put together a comprehensive plan that eases the burden of your passing on your loved ones.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.