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FAQ #2

2. Is it necessary to draw up Wills and trusts, now that the estate tax isn’t a problem?

The current federal estate-tax law allows each decedent an exemption of $5.4 million plus a cost-of-living (“COLA”) adjustment, and married couples can leave twice that amount, tax-free. In addition, gifts to spouses and to non-profit organizations are not taxable, so, altogether, most Clients’ holdings will not be subject to the federal estate tax, and elaborate tax planning techniques may be dispensed with. However, there are still local estate and inheritance taxes, not in Virginia but in Maryland, which is phasing in higher estate-tax exemptions over several years but still imposes a tax on certain heirs, and in the District of Columbia, which will have a $1 million per-person estate-tax exemption limit through at least 2017. (Anyone who owns a paid-up house and a retirement plan in the District, while not feeling “rich”, is likely to have an estate in the $1 million range.)

Because of these changes, however, many existing estate-planning documents contain obsolete tax provisions and could have unanticipated financial consequences if not revisited.

In addition, of course tax savings are important, but I believe that ever since “death taxes” became a prominent issue in recent years (and a way to advance “living trusts”), many estate planners have over-emphasized the tax aspect of this matter. It is much easier to show someone a theoretical tax saving than to get into the sometimes difficult aspects of family issues, financial and investment practices, and anticipated events that require careful planning. But once faced, these matters can be dealt with tactfully, and truly need to be in order to ensure the Client’s comfortable later years.