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In Light of the New Tax Laws, Do I Really Need Estate Planning Any More?

By: Stephanie Pahides Kalogredis
In light of the new tax laws, many of my clients are asking, “Do I really need to do estate planning?”

On December 17, 2010, Congress passed the “Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 or “TRA 2010”.  TRA 2010 generally extends the tax provisions from the 2001 Tax Relief Reconciliation Act (often referred to as “EGTRRA”) for an additional two years and modifies other laws.  The three most important provisions from an estate planning perspective are: 1) an increase in the unified federal estate and gift tax and the Generation Skipping Tax exemptions to $5 million dollars per person; 2) setting the maximum gift and estate tax rate at 35%; and 3) providing for the transfer of any unused federal estate tax exemption to the surviving spouse (“portability”).  In light of the new tax laws, many of my clients are asking, “ Do  I really need to do estate planning?”

The answer is yes.  First of all, these provisions are set to expire on December 31, 2012.  Without further action by Congress, the federal estate, gift and GST exemptions will return to $1 million, the maximum tax rate will be 55% and there will be no portability of exemption between spouses. It is never prudent to rely on Congress, federal or state, to provide you with good planning.
If these provisions are made permanent, there will be less need for tax driven estate planning.  However, the need for long term management and preservation of assets and distribution planning will continue.  And while portability does offer the advantage of simplicity, it is not guaranteed.  Portability does not happen automatically, the executor of a deceased spouse’s estate will have to prepare and file a federal estate tax return in order to allocate the unused exemption to the surviving spouse.  Further, the ability to benefit from the deceased spouse’s unused exemption may be lost if the surviving spouse remarries.
In many situations we continue to favor and counsel clients to include trusts for the surviving spouse’s benefit as part of their estate plan. Some factors that we consider are: 1) exposure to Pennsylvania or New Jersey state death taxes; 2) the desire to remove the growth in the assets from the surviving spouse’s gross taxable estate; 3) the need or desire for asset protection; 4) planning for the surviving spouse’s diminished capacity; and 5) directing the use of funds and disposition in the event of remarriage.
A good estate plan has never been purely tax driven.  Emphasis must always be placed on the individual client’s goals with customized drafting and sound legal counsel. It continues to be important that your documents provide as much flexibility as possible in light of the uncertainty surrounding the federal estate tax.

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