Estate Planning is an Ongoing Process: Is it Time for a Review?

If you're wealthy enough for your assets to trigger the estate tax, (which, absent new laws, means you have more than $1 million, or $2 million for a couple, as of January 1, 2013), you should know that the laws governing these taxes have been changing year after year.

When was the last time you reviewed your estate plan? Whether because of changes in your own life or that of your loved ones … or the ever-changing estate tax laws, regular updates and reviews are essential. As recently reported in Reuters, failing to update your estate planning can be disastrous. Consider the case of the Tweten family as another example of the best-laid plans of mice and men going horribly awry.

The article, aptly titled “Dramatic estate tax battle delivers fresh lessons,” should give pause to parents who may not wish to disinherit one another in favor of their ungrateful children.

Leonard and Eileen Tweten built their $100 million fortune by founding and building the Magnolia Audio Video Company. In 2008, the Tweten’s made estate plans to maximize their estate tax savings using a “formula clause” that automatically utilizes the maximum exclusion amount to their children, with the balance passing to the surviving spouse. Had one of the Tweten parents died in 2008, it would have meant that $2 million passed to their children. (Under current law, this would have meant $5.12 million.)

Problem 1: the Twetens did not anticipate a “zero estate tax” in 2010, the year of Eileen’s death.

Unintended consequence 1: the entire one-half share held by Eileen passed to the Tweten children!

Problem 2: Leonard and Eileen tried to correct this unintended consequence on her deathbed, but they were unsuccessful.

Unintended consequence 2: Unfortunately, when the Tweten children were “content” with the unintended consequence following their mother’s death, the matter went to the courts – and became a mess.

As the Tweten case illustrates, estate planning is a process, not an event. No fortune, large or small, is safe from the

rules governing estate tax minimization as long as there is a sitting president, a Congress, and an IRS to enforce the tax collections.

Particularly in uncertain times, politically and financially, your estate plans should be reviewed early and often.

Reference: Reuters (July 31, 2012) “Dramatic estate tax battle delivers fresh lessons

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