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CHAPTER 18 n KEEP YOUR PLAN CURRENT p
When to Update Your Plan
Vast sums of money have been lost through missed estate planning opportunities and family battles over documents that had not been updated. Estate plans should be reviewed at least every ive years, more often if there is a change in the law, your inances or personal circum- stances. These important developments, most of which are covered more extensively in other chapters, may require action on your part.
Changes in the law. The year 2010 was a watershed because the amount of an estate that is exempt from federal estate tax and from gen- eration-skipping transfer tax in each case took a big jump, to $5 million, from $3.5 million in 2009. This system was made permanent, with inla- tion adjustments in the American Taxpayer Relief Act of 2012, and the tax-free amount is now $5.43 million. That, coupled with the inancial crisis that lowered many people’s net worth, makes a review urgent.
Near term, check to see if your will includes formula clauses, which are recognizable because they include phrases like “that portion,” “that frac- tion” or “that amount” (without saying what it is). These are signs of lawyers trying to take maximum advantage of the exemption, which kept changing.
Instead of naming a speciic sum that will go into a trust, such as a bypass or credit-shelter trust (see Chapter 3) or a generation-skipping trust (Chapter 14), many wills refer to an amount up to the exemption or express the sum as a percentage of whatever the limit happens to be when the person dies. This is good standard practice, but with the exemption at $5.43 million, make certain the will relects your intent. For example, it’s possible that under your current arrangement, the designated fraction, or percentage, means less money would go to your spouse than you would like (Chapter 4) or that too much would go to your grandchildren.
State estate tax is another issue to consider if you live in or own real estate in a state that has such a levy (14 states and the District of Columbia). Often the state exemption is smaller than the federal one, and this poses a dilemma for spouses. Two of these states, Maryland and New Jersey, also have an inheritance tax, and another ive have inheritance tax instead of estate tax. Un- like estate tax rates, those for inheritance tax are typically based on the family relationship between the inheritor and the person who died.
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