With every new year there are renewed resolutions to do things we have been continually putting off, such as getting more exercise, losing weight, spending less, and maybe getting an estate plan in place. If you’re reading this, it’s not too late to retain an estate planning lawyer to begin or revise your current plans that may include a will or a trust. Even if you have a plan, it’s important to review it regularly. Laws change every year, and your concerns and needs probably do too. 2016 is no exception.
Basic Estate Planning
If you have no will or other written plans for transferring your wealth or taking care of your affairs should you become incapacitated, you need to speak with an estate planning lawyer… now. Some basic strategies include:
Durable Power of Attorney
If you become too ill or are injured in an accident to manage your financial or medical affairs, you can appoint a trusted individual to make these decisions for you. It can be limited to a single duty or be comprehensive to include nearly any task you would do such as signing checks. The power invested can take effect immediately on signing or when you are declared incapacitated. Some financial institutions require that you use their own forms so be sure you check with your bank.
A will is an effective and simple method of distributing your assets to whomever you wish. Although you have to go through probate, many states have summary procedures for limited estates. You can also name someone to administer your estate and see that your intentions are honored. A will can also help reduce estate taxes if it is planned accordingly.
There are a wide variety of trusts to consider if you do not have one or wish to create one for a special needs child, charity or some other purpose. Talk to Denver estate planning lawyer Dan McKenzie about your goals and the parameters of the particular kind of trust you want.
This is combined with your durable power of attorney where you appointed someone to make major medical decisions about your care and treatment. The advanced medical directive instructs your doctors or hospital to withdraw life support should you enter a vegetative state or are terminally ill. It can also contain instructions on where you wish to be hospitalized or that you be placed in a particular facility if you are not terminal but still unable to make decisions, such as suffering from dementia.
New Laws in 2016
You should also be aware of the 2016 estate planning changes that may affect you and your beneficiaries as well as old ones that are still in effect and that you not have been aware of or had forgotten.
Annual Gift Exclusion
This refers to anyone’s ability to give away up to $14,000 to any one individual and to as many people as you want in any one year without having to report the gift to the IRS. It includes not only cash, but the fair market value of all assets such as automobiles or stocks. Married couples can give away twice as much — $28,000. The law as it stands in 2016 allows you to give up $5,450,000 over your lifetime without gift tax consequences, though the present administration is proposing in its budget that it be decreased to $1 million. Given the Republican majority in both houses, it is not likely that this proposal will be adopted.
Note that the limit on tax free gifts does not apply to spouses. You can gift an unlimited amount to your spouse with no gift tax implications so long as your spouse is a US citizen.
If your spouse passes away, then you may take any of your deceased spouse’s unused lifetime exclusion amount from their estate. This means you and your spouse together can transfer $10.9 million to your heirs without incurring any estate taxes. This is not automatic! The decedent’s estate does need to make an election to pass any of the unused amount to you. This provision was implemented in 2011.
Capital Gains Taxes and Estate Tax Rules
The President has proposed raising tax on capital gains to 28 percent from its current 23.5 percent if this provision survives. His budget also would roll back the federal estate tax exemption to $3.5 million with assets above that amount taxed at 45%. Again, whether these proposals actually become law is hard to predict, but it’s probably unlikely.
Dan McKenzie is a Denver estate planning attorney who can help you achieve your New Year’s resolution to either begin or to revise your estate planning in 2016. With new laws on the horizon, give us a call to discuss what you can do to minimize your exposure to taxes, to protect your finances if you become incapacitated and how best to distribute your estate upon your passing.