New Middle-Class Income Tax Coming


This week is Estate Planning Week all across the nation and we want everyone to know how important it is to have a properly drawn will and accompanying estate planning documents.
Ross Cohen, president of the Estate Planning Council of Birmingham, has this to say, “Estate planning is an all-important matter for every person to be concerned with, whether they are well to do financially or not.  Many decisions important to a family, such as the naming of a guardian and conservator for minor children, or providing for elderly parents, are part of the estate planning process.  Furthermore, if substantial net worth is involved, then the planning necessarily must deal with the federal estate tax and the federal and state income tax laws.  Particularly, this year, significant planning opportunities present themselves until 2013, which might not be available then or in the future.  So, there is no time better than the present to deal with estate planning for yourself and your family!”
If you have not reviewed your will within the past twenty-four months, then right now is the perfect time to get with your attorney or professional advisor. A few issues you’ll want to consider are:
·         Estate tax changes. Current law allows you to leave an unlimited amount to your spouse free of any death taxes. Until December 31st of this year, you can leave up to $5,122,000 to someone other than a spouse without death taxes. Beginning on January 1, 2013 this limit drops to $1 million and tax rates move up to as high as 55% from the current 35%.
·         Double check beneficiary designations. I recently met with a divorced person who had failed to change his retirement plan beneficiary from his now ex-wife. You’ll also want to double check the beneficiary of any life and annuity policies you own. Remember, minor children (under age 19 in Alabama) should not be named direct beneficiaries of any assets. 
·         Who owns your life insurance? Often we find folks own life insurance that is payable to a spouse or children. If you die while the policy is in force, the death benefit is part of your estate for death tax purposes. Once you add life insurance to your other assets, many middle-income families will find the total value of their estate will exceed the $1 million death tax exemption. Ask your attorney how you can remove your life insurance from being exposed to the death tax.
·         New laws regarding Power of Attorney. Effective January of this year, the State of Alabama adopted a new model Power of Attorney agreement which compels financial institutions to accept and follow its terms. POAs drawn prior to this change may or may not be accepted by various institutions. You’ll want a new one that complies with current law.
·         Is a trust needed? If you have minor children, your will should make provisions for holding your money in a trust at least until the age of majority (age 19). In many cases, we find that young adults are not prepared to handle even relatively small amounts of money and are better served using a trust and trustee to help manage money until they have had time to experience ‘the real world’ for several years. Take a moment to add up the total value of your estate, including life insurance and see if you think your child would be ready to receive his or her share outright based on the age of distribution outlined in your current will.
Often, estate planning involves the teamwork of a number of professionals including attorneys, Certified Financial Planners, CPA’s, trust officers and life insurance representatives. That’s because there needs to be a coordination of estate taxes, income taxes, multigenerational financial planning, life insurance planning and trust planning. It’s these combined efforts that typically create the most effective estate plans. The Estate Planning Council of Birmingham includes professionals across each of these disciplines. For more information, visit