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Consider These Dates in History When Reviewing Your Estate Plan

ChangeWhenever clients ask if they need to update their will or trust, the first question back to them is: “When was it created?”  Has your family and personal situation changed since then?  Did you know that the tax laws have changed and how these changes might effect your estate plan?

The website nextavenue.org recently posted a very informative article, titled “Why Your Will May Be Out of Date,” which states that although your estate planning documents are still valid, they may no longer work the way you originally thought they would.

But how do you know if your estate plan is out-of-date? If your will or trust was created prior to the four key “freshness dates” listed below, it’s time to visit your estate planning attorney for a review.

April 14, 2003: the required HIPAA compliance date. The HIPAA privacy rule imposed strict guidelines on the disclosure of “protected health information” (or PHI) without the patient’s express permission. The privacy protections are designed to help us, but they could be problematic if your executor, trustee or agent (under a durable power of attorney) needs to speak about your personal details with your employer, insurer, or medical providers. The rule says that to act on your behalf, an authorized person must have a written document executed by you, with very specific language required by HIPAA. The article says that if your will, revocable trust, durable power of attorney or health care power of attorney was executed before April 14, 2003, your executor, trustee or agent may have some trouble working with your medical providers and insurers. Talk to an estate planning attorney and have him or her update your documents to include the required HIPAA language.

January 1, 2005: if you live in a state that imposes its own state-level estate or inheritance tax. Prior to 2001, there was a federal credit for state death taxes, varying by the size of the estate. There was little incentive to make plans for avoiding state death taxes because those taxes were totally offset by the federal credit. However, the Economic Growth and Tax Relief Act of 2001 (EGTRA) phased out the credit between 2002 and 2004, and since January 1, 2005, state estate or inheritance taxes apply in addition to any federal estate tax. There are now 15 states that impose their own state estate tax. Seven states have an inheritance tax. Several states have both. If you live in a state that imposes its own estate tax and your will or revocable trust was executed before 2005, you need to talk to your estate planning attorney about these state taxes.

December 17, 2010: the enactment date of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“TRA 2010”). This upped the federal estate tax exclusion to $5 million for 2010 and indexed it to inflation after that. For 2015, the federal estate tax exclusion is $5.43 million. In effect, TRA 2010 eliminated the federal estate tax for thousands of people, so if your estate plan was created before December 17, 2010, your estate planning documents may contain federal tax-planning provisions that are no longer needed. Talk to your estate planning attorney about a better and simpler plan. However, the reverse may be true if you live in one of the 20 states that imposes a state estate tax or inheritance tax. There may be a more sophisticated plan you need to consider with your attorney to deal with state estate taxes, as they usually start at a much lower threshold. The article stresses that tax laws are drastically different today: estate planning documents drafted before December 17, 2010 may produce unexpected or unfavorable results.

January 2, 2013: the American Taxpayer Relief Act of 2012 (ATRA) went into effect. This is important for married couples with a combined taxable estate exceeding $5.43 million – it made the “portability election” a regular feature of federal estate tax planning, which allows an executor to transfer a deceased spouse’s unused federal estate tax exclusion to a surviving spouse, a very important estate-planning tool. So, if you are married and your will or trust was drafted before January 2, 2013, you need to sit down with your attorney—you might be missing out on valuable tax planning opportunities.

Reference: nextavenue.org (April 27, 2015) “Why Your Will May Be Out of Date”

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