The
New Year is a good time to make sure your estate plan is in order. Most importantly, you should review and
update your will, or have one prepared, if you haven't already.
One of the most common misconceptions about
estate planning is that the primary planning concern is avoiding the federal
estate tax. However, for 2014, the estate tax only applies to individual
estates that exceed $5.34 million. Why,
then, is it still critical to have an up-to-date estate plan?
First, many states impose their own estate tax
with lower income thresholds. For
example, CT imposes up to a 12% tax on estates over $2 million. In NY, estates over $1 million face up to a
16% tax. Proper planning can minimize these taxes.
Second, transferring property through your will,
or a will-substitute, can save your heirs taxes. Property transferred upon death receives a
step-up in basis for tax purposes, whereas inter
vivos gifts receive a carryover in basis from the purchaser. Thoughtful planning will maximize the value
of your bequests.
Finally, even if you
plan to distribute all of your assets through will-substitutes, like trusts, a
will is still important to ensure the efficient and cost-effective
administration of your estate.
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