For the majority of the last 15 years, the desire to avoid the Federal Estate Tax has driven the preparation of many estate plans. In 1999, the exemption from the Federal Estate Tax was $650,000. After reaching the exemption amount, the tax started at 35 percent and hit a maximum of 55 percent! In the past two decades, several tax laws have passed which have gradually increased the federal exemption. Today only the wealthiest of individuals have estates that are potentially subject to estate tax ($11.4 million for a single individual and $22.8 for a married couple as of this writing).
Does this increase in the federal estate tax exemption mean that the need for estate planning has gone the way of the Blockbusters and K-Marts of our past? Hardly. Besides avoiding the undesirable results under Indiana law from not having a will (an article another time), there are still good reasons to have an estate plan.
If you are the parent of minor children, you may wish to incorporate provisions in your will that would change the age by which your children can receive their inheritance. With no will or only a basic will, your children will receive their inheritance as soon as they turn eighteen. For parents of teenagers (myself included),, this may be a terrifying notion that would cause many a sleepless night! You can avoid this unfortunate result by utilizing trust provisions in the terms of your will, so that instead of your estate going directly to your minor child, the property is held in trust for their benefit. With their property in a trust, you then control the ages by which they receive distributions. You may specify that a child receives a set amount of income. You may specify that your child receives their inheritance at set intervals (1/3 at 25, 1/3 at 30, the balance at 35). You can even specify that a child receives a dollar from the trust for every dollar earned through gainful employment. By utilizing a trust, if you can dream it, you can accomplish it (with the help of an estate planning attorney, of course).
Your family may also include a beneficiary who is disabled or has special needs. Many disabled individuals receive Medicaid for their health needs and Supplemental Security Income to provide them with monthly income. Both of these programs have a $2,000 asset limitation cap which means even the smallest inheritance could have a devastating impact on the life of a disabled individual. By incorporating a special needs trust in the terms of one’s will instead of leaving an inheritance to the individual outright, you are no only providing a benefit to them, but you are doing so in a manner which will not cause a disruption in their benefits. Additionally, if properly worded, you can specify that any remaining property pass to other beneficiaries following the death of the disabled beneficiary rather than passing to the government.
While the tax landscape has definitely changed over the years, the need for estate planing continues to be as important today as it was back in 1985—the year Blockbuster Video was founded.
Timothy K. Babcock