Waiting until a new federal tax plan is final before seeing your Estate Planner?

Not a good idea. You should see your estate planning attorney despite the “pending” change in the Tax Code.

One of the primary reasons that many wealthy people spend the time and money to plan for their retirement and the security of their families is the massive impact that estate taxes can have if left unattended. This is why they seek out the counsel of an estate planning attorney. If not effectively planned for well in advance, the estate of a relatively wealthy individual can be decimated with taxes upwards of 40% – 70%+, made up of multiple estate and generation-skipping taxes. Those of us in Oregon and Washington know that the state you live in can make a big difference in how much and whether the estate tax will apply to us. Fortunately, the estate tax does not apply to everyone.

As almost everyone has heard about by now, there are efforts underway in Congress to dramatically change the U.S. Tax Code. One of the areas being considered for change is the estate tax. While the changes proposed to the income tax are getting much of the media spotlight, the estate tax is the part of the Tax Code that can have the most impact on wealthy Americans and their continued legacy. The U.S. House of Representatives has proposed to completely eliminate the estate tax over time. The U.S. Senate’s competing proposal has put forth a plan to make temporary changes to the estate tax, with the plan lasting for ten years, at which time the estate tax would kick back into force. Many of us estate planning attorneys believe that the estate tax will be around for years to come, in one form or another. With all of these discussions and negotiations underway, the question of whether it makes sense to do any estate planning when such uncertainty about the future of our tax system is being contemplated often comes up.

Be cautious

I think it makes a lot of sense to be cautious when this amount of uncertainty about our tax system is in the air. However, it is important for estate planning lawyers to ask themselves whether they are absolutely sure that their wealthiest clients will not be impacted by unplanned-for estate taxes if they were to pass away unexpectedly. Of course, the answer to this will most likely be no. We cannot guarantee that. Therefore, it makes the most sense to continue looking for sensible approaches to your estate planning, and executing those plans even in light of the turmoil in Washington D.C.

While there are many non-tax reasons to engage an estate planner, the tax reasons are usually the ones with the most bite if not planned for effectively and well in advance of any “triggering event.” The point of this blog post is to highlight that these “triggering events” will continue to take place, regardless of the “noise” in our nation’s capital. Better to plan for them while we have time. Your estate planning attorney will be able to guide you to the best plan for your particular situation. He or she will be well-versed in the background tax discussions going on in Washington D.C. and build estate plans with the uncertain future in mind.

There is always some level of uncertainty…

You see, we can never be certain of what the future holds – especially in the federal tax world. Our tax system changes every year. The estate tax system has changed nearly as often. Only a few short years ago, the unified credit was only a million dollars. Now it is more than five million. Just a few short years ago, the unified credit was not portable to surviving spouses, and now it is. In 2010, those “lucky” enough to die that year did not have any estate tax due at all. This applied to the former owner of the New York Yankees, George Steinbrenner. I doubt he planned in advance to die that year, but the fact that it happened that way saved his estate a small fortune. In 2011, the estate tax was back in force.

Which is why we plan for it….

Circling back to my point: we can never know what the future will bring, but one thing is certain – our tax system will change, and it will continue to change over time. Even if the estate tax is repealed, that does not mean that a new government elected in the next few years wouldn’t decide to restore the estate tax. A temporary raising of the estate tax exemption will mean that fewer people are impacted by the estate tax, but that change can easily be unraveled in the next Congress. Additionally, there has been no talk of eliminating the gift tax. The gift tax will likely continue on, but changes will likely need to be made to it if the estate tax is eliminated. Finally, there is always the Washington and Oregon state estate tax to consider – that will still be there waiting for us even if the federal estate tax is repealed or its impact reduced.

For all of these reasons (and many more), it is wise to continue working with estate planners to map out the best strategies for reduced estate tax with the same level of diligence as existed before all of this talk of estate tax change or elimination. If you have not discussed your estate with an estate planning attorney, you should not put this off because of the uncertainty in D.C. or any other reason. Call one of us today.

Mark D. Nusz is an Estate Planning Attorney located in Mount Vernon, Washington. A graduate of the University of Washington Tax LLM program, he works with clients all around the Puget Sound area. www.WestwardLAWpllc.com