The thing about estate planning that many people do not fully understand is the fact that it is not something that you do once and then forget about. When you first sit down to put an estate plan in place you are doing so based on circumstances as they existed at that time. These circumstances are both personal and societal. But as your own life changes and as the laws and the financial markets go through their own inevitable changes you will need to update your estate plan accordingly.
On a personal level, people often get divorced, they remarry, they have grandchildren, and their financial standing will inevitably fluctuate over the years. All these types of events call for estate plan updates.
But then there are the things that are out of your control entirely, such as the estate tax parameters. To give you an example of just how profound these changes can be, at the present time the estate tax exclusion is $5 million and the top rate is 35% as a result of the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. If this measure had not been passed the estate tax exclusion would have been $1 million in 2011 and the maximum rate would have been 55%.
In a classic instance of “déjà vu all over again,” this measure that is currently in place is scheduled to sunset at the end of 2012 just as the Bush tax cuts were to expire at the end of 2010. If it does indeed expire without any new legislation passing to replace it, we will once again be faced with a $1 million exclusion and a 55% top rate when 2013 begins. Needless to say, there’s a big difference between zero tax liability on a $5 million estate and a 55% bite on $4 million of that $5 million estate, and this difference ($2.2 million) hinges on a single tick of the clock.
Considering how much there is at stake you can see why it is so important to have a communicative, ongoing working relationship with your estate planning attorney so that you can adjust your plan as necessary.