Live for today, but plan for tomorrow. Protect yourself and your family during National Estate Planning Awareness Week.
When you think of October, you think hot apple cider, freshly fallen leaves and family trips to the local pumpkin patch. As you enjoy these autumn moments, you should also set aside some time to review your estate plan. In fact, October 15th through 21st is National Estate Planning Awareness Week. Even if you have not experienced any life-changing events over the past year, this is a good opportunity to evaluate your estate plan.
According to a WealthCounsel survey, nearly 70 percent of respondents believe that Americans fail to plan because they lack knowledge of why they should, and more than 120 million Americans lose money and face avoidable hardships because they fail to plan for the future.
So what exactly is estate planning? It is a map that directs the way you want your personal financial affairs to be handled in case of incapacity or death. And while many think estate plans are only for the wealthy, they are not. Regardless of how much wealth you have, it is important to have an estate plan to ensure your wishes are carried out after you are gone. A clear estate plan may even help your heirs avoid unnecessary tax liabilities.
Draft a Will
A will provides a blueprint for the distribution of your assets if something should happen to you. A properly drafted will can also save you money on estate taxes and protect your beneficiaries. You may also wish to consider a living will, which details your preferences for medical procedures, such as resuscitation, ventilation, nutrition, pain medicine, antibiotics and organ donation during an end-of-life situation.
Elect a Power of Attorney
In addition to a will and a living will, you should consider establishing powers of attorney for your finances and healthcare. These documents designate persons you will allow to make financial, legal and medical decisions on your behalf while you are alive. A power of attorney can be changed at any time, but it’s always smart to designate your power of attorney when you are in good health. Even though you many not want to think about it, every adult should designate a power of attorney to handle the “what‐ifs” in life.
There are many things to consider when creating an estate plan. In addition to these factors, you should also be aware of some important changes that will take place in 2013.
Federal Estate and Gift Tax Exemption
Property transferred at death is generally subject to estate tax. Also, if you transfer property to another person during your life, the transfer may be subject to gift tax. This is to prevent someone from avoiding estate tax by giving all of his or her property away before death. However, unlimited transfers can be made to charity or a spouse without estate or gift tax liability.
On an annual basis, you are able to give up to $13,000 to any number of individuals tax-free. In addition to the annual exclusion, each individual has a lifetime exemption from all transfers (gift and estate transfers combined). In 2012, the lifetime exemption credit is $5.12 million—the highest level in history. However, on January 1, 2013, the gift and estate tax exemption amount is scheduled to decrease to $1 million unless it is changed by Congress.
In 2012, an important feature of the $5.12 million federal estate and gift tax exemption is its portability between married couples. This means that any portion of the exemption that is not used by a deceased spouse may be transferred to the surviving spouse. Therefore, a married couple may pass on $10.24 million tax-free, as long as the estate of the deceased spouse makes the proper election on the estate tax return. But in 2013, portability of the exemption is scheduled to expire. If you plan to take permanent advantage of the current $5 million portable exemption, you should act now before it disappears. If you need assistance, consult your financial planner or check out some of the many tools available online.
Enjoy October activities with your family, and take some time to reflect and think about your needs. Even if you are below the $5 million threshold ($10 million for married couples), you still need an estate plan. Be aware of the various considerations, and be sure to watch the laws from year to year. It is up to you to do what is best to protect yourself and your family.iBi
Julie Cook, CFP is a financial advisor with Savant Capital Management, located at 7535 North Knoxville Avenue in Peoria. For more information, visit savantcapital.com.