The federal estate tax exemption, which is the maximum amount of wealth an individual can have when they die but not pay any federal estate tax, used to be $600,000. The families of the deceased who exceeded this limit were often people who did not consider themselves rich—maybe a farming family with a small working farm for example. Unfortunately, they often discovered that all it took was a little bit of real estate, combined with the death benefit payout from a life insurance policy, and not only was their loved one gone, but the surviving family owed a hefty federal estate tax payment. This often devastated families financially.
In 2013, the federal estate tax exemption is much higher, at $5,250,000. This means that the vast majority of families won’t have to worry about paying federal estate taxes after they have lost a loved one.
Sounds like great news, right? It is great news, but now that the exemption is much higher, many attorneys miss key opportunities to help clients properly protect and manage their estates because they think estate planning is only for the wealthy.
In our office, we often employ trusts in our estate planning, even for families of relatively modest means. Why? Because proper planning, in our view, is not just for the very wealthy. You many not have an estate worth more than $5 million, but we believe people still should make sure that their estate (whatever that is) is properly protected and managed both during their lives, as well as passed on as they desire after they are gone.
Estate planning is still relevant and having basic estate planning documents in order is just as important as ever. There are three key documents that every adult should have:
1) Durable Power of Attorney
This document is very powerful because it creates a legal “Mini-Me” of you. A DPOA allows you to designate an agent who can do anything that you yourself might legally do, such as access your bank account or safe deposit box, sign papers to buy or sell real estate, or even have access to your cell phone and social media passwords. Because it is such a powerful document, you should pick your agent carefully. Additionally, having a DPOA in place allows you to avoid one of the worst pitfalls of incapacity— guardianship. A DPOA represents a small, one-time cost, while a guardianship costs several thousand dollars just to set up and then costs more money on an annual basis to maintain.
2) Health Care Surrogate
This document allows you to designate someone to make ordinary health care decisions for you should you become temporarily incapacitated. That incapacity might be only that you are under anesthesia for a procedure in a doctor’s office, or it could be that you’ve been in a car accident and you are unconscious and unable to speak for yourself.
3) Living Will
This is for end of life decisions, when you might be suffering from a terminal disease, an end-stage condition, or are in a persistent vegetative state. In a Living Will you nominate someone to speak up for your desires, expressed in the document, about whether or not to continue to provide life saving medical attention when it appears that there is no reasonable possibility of your recovery, and whether or not to administer even food and water to you at such a time. Having this document, signed by you, can be a great blessing to your family at a time when they will be under extreme stress to know how to proceed.
So remember: No matter how much or how little you may have in your own estate, you still want to be sure to manage it well during and after your lifetime. These key documents, developed by a qualified legal professional, will give you the peace of mind to know you are doing the best you can with whatever you have saved and/or created in your lifetime.