published Saturday, January 15th, 2011

Phillips: Estate tax law may be on verge of changing


by Ellen Phillips

Q: I've been hearing all kinds of rumors about estate planning errors. Even though my wife and I have a trust, I'm a bit concerned about these rumors. What's the straight story about the federal estate tax that expired in 2009? — Larry Living

A: Dear Mr. Living: The tax that expired at the end of 2009 is set to roar back up any day now, unless the new Congress acts.

According to Bottom Line Personal, the rate soars to 55 percent and exempts only $1 million to beneficiaries other than a spouse. (While the latter number sounds like a pile of money, by the time we add up everything we own, the numbers can be a huge surprise.)

Bottom Line points out common errors the average taxpayer makes when coming up with an estate plan. For example:

• The assumption that the $3.5 million exemption would last forever. Check with your tax attorney or CPA ASAP, especially if your estate is worth between $1 million and $3.5 million. Can you minimize your taxes? If you're married, does the combined exemption lessen when the first spouse dies and those assets pass to the living spouse? (www.BottomLineSecrets.com/Extra.)

• You detail too much information about your personal property. Forget who gets what concerning every little gift in your will. While you don't want your heirs fighting over property, every time you buy an item that needs disposition, you'll need to update the beneficiary, which is an awful lot of time and exhaustion.

Instead, think about marking certain items with the certain person's name or making a list to keep in your underwear drawer. This way, you'll feel free to change your mind without messing with your will.

• You didn't properly execute your will. Each state has its own rules about signing a will. If you mistakenly violate any of these regs, your will might be invalid. Be especially careful when drafting a homegrown will or using a lawyer who doesn't specialize in estate planning. Moreover, whenever you modify the document, be sure to do so in the presence of said attorney (see below).

• You add a codicil (supplement) to the will. Ask your attorney whether it'll cost you less to make changes by updating the will rather than making changes via your underwear drawer. If privacy is a concern and you fear eyes will see your notes, then updating the will may be a better idea.

• You don't take the necessary steps that allow a dependent to continue to live in your home after you die. If no joint owner survives, the executor legally must sell your home as quickly as possible; this means that anyone you wish to continue to have a home -- either a relative or friend -- will get the heave ho. Be sure to include a clause in your will that specifies who can continue to live there, for how long, and any rent that should be charged.

(to be continued...)

Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears on Saturdays in the Business section of the paper. E-mail her at consumerwatch@timesfreepress.com

about Ellen Phillips...

Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears on Saturdays in the Business section of the paper. An expanded version is at www.timesfreepress.com under Local Business.

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