The New Rules of Estate Planning

By GLENN RUFFENACH

You have to hand it to Congress: It’s doing its best to turn one of the more wearying parts of retirement planning — getting your estate in order — into something of a party. The challenge for you and me is to stay clearheaded.

The Tax Relief Act of 2010, passed in December, made headlines primarily for retaining the Bush-era income tax cuts. But lawmakers also approved changes in estate and gift taxes that left lawyers and accountants gushing. (“Unprecedented.” “Historic.” “Astonishing.”) Most notably, the gift-tax exemption jumps from $1 million to $5 million, which means Americans can now bequeath the latter amount without paying a dime in taxes. This exemption is separate from the annual gift-tax exclusion, currently $13,000.

Now that the hoopla has quieted somewhat, we’re starting to get a clearer picture of who might benefit from Washington’s generosity. When considering whether to fiddle with existing estate plans, there are two things to keep in mind: First, estate planning is sales-oriented. Tax attorneys will be more than happy to craft a new trust (or two) for you. But new rules — however “astonishing” — don’t necessarily mean you automatically need new, expensive documents. (One instance where an automatic review is in order: estate plans that contain “formula clauses.” More on this below.) Second, the changes made in the 2010 legislation expire after the close of 2012, which means the window in which to act, if you choose to, is fairly limited.

Given all that, here are several issues and strategies to consider, whatever the size of your holdings.

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