$100 Million Estate Plan and 2010 Estate Laws

August 16, 2012

If you have more than 1 million dollars or 2 million dollars of January 2013, you may find that part of your estate will be subject to an estate tax of 55% and in some states subject to additional estate taxes and or inheritance taxes. (Florida does not have either state tax).

Many estate plans have been written with formulas that remove a portion of the assets when the first spouse dies. Those formulas are often based on the current federal estate tax exemption. They either pass the amount of the exemption to the spouse, and remove the excess or remove the amount of the exemption and give the rest to the spouse.

In 2010, these formulas were often broken because there was no estate tax. One family who had sold their stores to Best Buy a few years before was affected by this issue.

The lawyers scrambled to try to fix it at the last-minute but someone failed to comply with the requirements of witnesses and a notary for the modification to be valid. The surviving spouse would have lost the entire estate to the children because of the way the formula worked out.

This type of mistake can make a huge difference in the estate planning outcome and as a result we should each have our estate plan reviewed on a regular basis. Over the past few years there has been less need for life insurance trusts to stop the value of the insurance from being included in one's estate. With 2013 changes, irrevocable life insurance trusts will become more important than they have been in many years.

While life insurance is generally not subject to income tax, it value is added back into one's estate for estate tax purposes. This means that for many of us who have life insurance, it could be subject to a 55% tax and not provide as much to our family as we would like.

An ILIT or irrevocable life insurance trust can remove the life insurance from your estate so that it is neither subject to estate tax nor income tax.