With a federal exemption of estate taxes and gift taxes through 2012 of $5 million per person, significant planning strategies may be completed within the next year and a half in order to save a significant amount of funds for future generations.
There are challenges in making these decisions, however, as oftentimes you must relinquish control of an asset or the asset itself. In any event, strategies include outright gifts, gifts in trust, 529 Plans, buying and funding Irrevocable Life Insurance Trusts, and other options in order to preserve wealth and minimize, if not eliminate, estate taxes.
In addition, it is a good time to review your health proxy, durable power of attorney, and will to ensure that the proper individuals are named within these documents. Perhaps when the documents were originally prepared a child had a different name, lived in a different geographic area, was not married, or has remarried, which may be a significant consideration in whether that person should continue to serve in that role.
Beneficiaries should also be reviewed within your will to determine whether they should be receiving the funds outright, in trusts, or some other method of distribution. Beneficiary designations on life insurance and retirement plans should also be reviewed make sure that they comply with the intentions of your plan, as these beneficiary forms allow funds to pass non-probate and therefore, will not pass under the will or trusts unless the trust is named as the beneficiary.
It is also important to remember that you are divorced, the beneficiary forms of life insurance and retirement plans should be changed, and if not, in many jurisdictions, your former spouse, who is named, will still be entitled to those benefits even if the separation agreement and divorce decree specify otherwise. Another unfortunate consequence of such an oversight is that assets passing to a non-spouse also carry with them income and estate tax repercussions.
In the event that there are any children or grandchildren who have special needs, are disabled, or are receiving any governmental benefits, a frank discussion should occur to assure that you understand what benefits are at risk upon inheritance of a significant amount of money. This inheritance might force the individual to spend down a portion, if not all, of the assets you leave to him or her.
If your plan has not yet been prepared, this is a good time to begin the process as well
