Congress finally has acted to extend certain tax breaks to all Americans allowing them a breather in an already tough economy. While we can all be thankful for not getting an unexpected tax increase, we should all remember that this is a two year patch. As we saw these last few months, anything can happen in politics and this will dramatically affect the tax environment. While these tax benefits have given us all a breather, remember that planning is still very important to cover unexpected issues.
The Federal estate tax law was modified in several important respects. The State of Illinois has also responded by enacting its own estate tax in addition to increasing the income tax. While for Federal purposes, exemptions were increased to $5,000,000 per person, the state has limited their exemption to $2,000,000. This means that many of the plans out there may not be able to accommodate both Federal and state changes and unexpected results could occur.
The changes in the law open up some opportunities, such as gifting to accomplish your goals, but these strategies should not be undertaken without proper counsel about the impact this will have overall. Periodic review is important also for the following reasons:
- to protect assets from creditor claims,
- to ease transition without probate,
- to preserve family businesses,
- to make sure children are properly provided for,
- to easily change the planning to accommodate state law changes, such as the new Power of Attorney law that takes effect July 1, 2011, and
- to provide for enforceable rights where the law may not.
Since the current Federal law “sunset’s” in two year years, and at that time we will be facing presidential as well as congressional elections, you can bet this law will be on the docket to change. Couple this with the economic situation, and anything can happen.
We are advising our clients to get on a proper maintenance program so that they can get the right counsel when the changes occur, and be able to change their planning easily and inexpensively when the time comes.