Estate Planning Guide
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Estate planning in uneasy times

Estate planning is never easy, and the uncertain economic and tax environment only adds to the difficulty. But you can and should still plan your estate. Changes can always be made later if they become necessary.

"The estate tax issue has left everyone in a real tizzy," says Norman Boone, president of Mosaic Financial Partners in San Francisco. "It's hard to know what to plan for. Many find it hard to feel sorry for the rich. But it's difficult for any kind of planner to give thorough, good advice, because we don't know what the environment will be."

Estate tax policy is in flux. The estate tax exemption totals $3.5 million for this year. The estate tax is scheduled to disappear next year, but that disappearance would be only temporary. A $1 million exemption is slated to come back in 2011.

If the rules aren't changed, "you may see a lot of people kept on resuscitators until January 1 and then see the plugs get pulled -- death planning," says Jeff Azis, a North Palm Beach, Fla., accountant with many wealthy clients. The idea, of course, would be for people to die next year, when their estates won't be taxed.

Estate planning uncertainties
  1. Estate tax exemption.
  2. Investment and real estate values.
  3. Trusts and insurance.
  4. Social security and income taxes.

Extended $3.5 million exemption?

But Azis and others say Congress probably won't leave estate taxes at zero next year. With the budget deficit expected to reach almost $2 trillion this year in the wake of the financial crisis, the government needs every dollar of revenue it can get its hands on.

"I can't see them doing away with estate taxes next year," says Certified Financial Planner Diane Pearson of Legend Financial Advisors in Pittsburgh. "The economy can't do without the revenue."

Charles Sachs, vice president at Evensky & Katz Wealth Management in Coral Gables, Fla., says the scuttle from Washington is that the $3.5 million exemption will simply be extended through next year. "We fear that's so easy to do, that it just might happen," he says.

“Typically when you don't know what to do ... the best plan is to assume there won't be any changes,”

"Most people don't care about the estate tax. The idea of another nickel or dime in taxes on cigarettes and beer gets people's attention. But when the talk is about estates of $3.5 million and more, people say, 'Go ahead and tax those rich folks.'"

So what are the wealthy and their estate planners to do? "Typically when you don't know what to do, and things are in a state of flux like this, the best plan is to assume there won't be any changes," Azis says.

The current line of discussion in Washington probably runs something like this, he says. "We know that we have to do something, but we are too busy dealing with more important issues like health care." That makes a one-year extension of the $3.5 million extension the easiest path.


"If you plan under current law, you know it might be in existence until the end of next year," Azis says. "Beyond that is anyone's guess. Every crystal ball has major cracks."

The recession that began last year also has affected estate planning, and the uncertainty as to the timing and strength of the recovery has added complications, too.

Shrinking investment and real estate values

The economic downturn and the sharp drops in financial markets and real estate put a crimp on the value of people's estates. "Many people might have dropped below the $3.5 million exemption level," says Peter Tedstrom, a partner at Brown & Tedstrom financial advisors in Denver. "If they have, they might not see any need for estate planning."

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