“Estate planning taxes” do not exist. There is no tax on the process of estate planning. However, if you neglect to set up an estate plan, it will cost you. If you don’t take action, your family will lose money in the form of probate, state estate taxes, and federal estate taxes. None of these is an “estate planning tax,” but they are all very real costs that you can and should avoid.
What documents do you need in place to avoid costing your family? You need a Will, a Trust, a Durable Power of Attorney and a Living Will. The will and trust work together in a good estate plan.
You may have heard that the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” will only tax estates with more than $5 million. You may figure that there is no way you will pay taxes. This may be true, however, this law expires in two years and the estate tax limits return to $1 million.
Plus there are other costs associated with dying that a good estate plan will help you avoid. That makes establishing a good estate plan essential.
Now is also a good time to review your estate planning documents, if you already have them in place, because the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” has changed estate planning.
Yes, it eliminated federal estate taxes for most families, but it contains certain provisions that will cause your trust to trigger a horrendous state estate tax. If you have a living trust, your living trust must now be revised in 17 states.
So, even though there aren’t any “estate planning taxes,” if you haven’t done any estate planning you need to do it now. If you don’t have an estate plan, taxes in the effected 17 states could cost even modest estates hundreds of thousands of dollars.
If you already have a plan in place, you still need to put some work into your estate planning and make sure everything is ok after the new laws.