By Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services
Changes in Estate Tax law at the Federal level and the elimination of inheritance taxes in Indiana have significantly increased the threshold at which “death” taxes are incurred. A few years ago Congress amended the IRS code so no estate tax is due on estates with a value under $5.45 million (2016 amount) for individuals, or $10.9 million (2016 amount) for married couples. And the Indiana Legislature completely eliminated state inheritance tax.
This was good news for critics of estate taxes, which they have dubbed “the death tax,” since it incurs when there is a death in the family. Now, more accumulated wealth can be passed down from generation to generation without the state or federal government claiming a large slice of the pie.
One downside, however, is that it has led people to believe it’s no longer as necessary to plan their financial future as it once was. But experts agree that estate planning is still critical if you want to ensure the accumulated assets you worked so hard to acquire are distributed according to your wishes after you’re gone.
We recommend that you have a professional review of your estate plan every two to three years, by both your trusted financial advisors and an attorney who specializes in estate, elder care and family planning matters. Circumstances do change over time, and your plan must reflect those changes.
Factors to be considered include the role of a trust, the appointment of a trustee and any designated successor trustees, the guardianship of any minor children and philanthropic wishes. If you don’t already have an estate plan in place, it’s never too early to start thinking about the choices you want to make.
If you have a plan in place, but haven’t revisited it in a while, you may find that some of your previous decisions have been superseded by developments since you originally established your plan. A designated trustee may no longer be your preferred choice. Or a favorite charity has been beset by internal turmoil. Meanwhile, another nonprofit organization may have a higher priority of need.
Change is the natural progression in any family: minor children grow up to be adults, adults get married, divorced, remarried or remain single, have children of their own or choose to remain childless. This may spur a reordering of your beneficiaries, such as including grandchildren who hadn’t been born when the estate plan was first created or grandchildren that come along with the second marriage of a son or daughter.
Every family dynamic is different, so your estate plan should evolve as the people you love change and adapt.
As CPAs we know that the road is littered with individuals who didn’t properly plan their estate. It can be heartbreaking to watch a family’s harmony damaged due to the administration of a poorly planned estate. This sort of discord can often be avoided through proper planning and communication.
When you’ve worked so hard all your life and succeeded in accumulating even a modest amount of wealth, it’s difficult to think about upsetting people you love after you’re gone due to estate planning that doesn’t reflect your wishes at the time of your passing. The legacy of most parents is that family harmony persists and survives their lifetime.
In addition to beneficiaries, estate planning should also include preparation for healthcare challenges that an individual may encounter during their life. When talking to your advisors, make sure to discuss tools like a living will, a designated healthcare representative, and a power of attorney. Know who you want to speak on your behalf in case you are injured or ill and are not able to do so yourself.
While you’re thinking about these issues, you may want to consider including your loved ones in the discussion. We know these may be painful conversations to have, but it’s much preferable than having your family face internal strife after you’re gone or incapacitated.
A lot of people will not have a taxable estate due to the higher limits, but it’s still important to have an estate plan in place, and update it as needed. It’s comforting to know your wealth will be preserved and distributed in the manner you want (rather than by government edict) so that your legacy carries on based on your preferred wishes.
If you need advice on estate planning or any other personal financial issue, please call Nick Hopkins, Director of our Tax Services at (317) 608-6695 or email [email protected].