Estate and Succession Planning: More Important Than Ever

By Owen Fiore, JD

After enactment of the American Taxpayer Relief Act of 2012, many clients and their advisors quickly concluded that “estate planning” was no longer important. This was primarily due to the effectively permanent large Federal estate and gift tax exemption level of $5 million-plus per person. This exemption, which is adjusted for inflation annually, this year is at $5.43 million – effectively eliminating Federal estate tax concern for over 99% of U.S. families! Yet estate and succession planning is more important than ever – for both tax and non-tax reasons.

First of all, 19 States still have an estate or inheritance tax of some type, and some of these jurisdictions have much lower exemption levels than does the Federal estate tax. So tax practitioners must know their State law for clients before eliminating estate tax from the planning agenda. In addition, many Wills and trusts are quite out-of-date, especially if not updated the past few years, and the changes in family situations, increase or decrease in net worth and other factors call for updating of the estate and succession plan.

And we must remember the general rule of step-up in income tax basis (IRC Sec. 1014) at death of the owner of an appreciated value asset. The Federal law providing a “Portability Election” must be taken into account in many instances to ensure stepped-up income tax basis at death of the surviving spouse as well as at the death of the first spouse to die – and this requires filing a Federal estate tax return (Form 706) even though only for that one purpose.

Beyond these issues still are the many non-tax purposes of estate and succession planning. After all, it still is true “You Can’t Take It With You” at death, referring to property of the decedent. What are some of the non-tax issues: blended families with children from different marriages, planning for non-traditional or same sex couples, post-marital dissolution planning, making certain that qualified retirement plans and IRAs are handled properly at death of the plan or IRA participant, asset protection trusts to protect against third party creditors, ensuring succession and preservation of the family-owned business, and many more issues for consideration.