NBCChicago reporter Kim Vatis provides a weekly personal finance segment to our Inc. Well readers, because good business practices begin at home.
If you think tax season is over, think again.
The Tax Relief Act of 2010 has changed the rules for estate taxes. And while Congress is giving families a gift, they need to act now and plan.
"2011 to 2013 is critical," said estate planning attorney Danielle Mayoras. "Take advantage of the laws while we have them."
As of this year, the federal exemption for estate taxes is $5 million dollars, but that will go down to $1 million in 2013.
In Illinois, the exemption is just $2 million, meaning a lot more middle class families here could be affected.
"It's not just the money in the bank," reminded Mayoras.
Death benefits on life insurance, your 401ks and the fair market value on your home are all part of your estate and could add up to $2 million dollars quicker than you think, she explained.
The death tax in Illinois is 16 percent. Federally, it’s 35 percent.
That’s one reason why your last will and testament may be one of the most important legal documents. The statistics are startling: well over half of Americans don’t have any will at all; no road map of what to do with their estate.
"The worst thing you can do is nothing at all," said Mayoras.
She advises creating a trust rather than just a will to keep your affairs private and avoid court battles and probate court fees.
In a trust, Mayoras said: "It’s still my pocket, so I can take money out and put money in. The difference is nothing goes through probate when I pass away."
Even the rich and famous flub. In her book, Trial and Heirs, Mayoras tells how lawsuits mounted after Marlon Brando’s death because not all his wishes were in writing. Problems with Michael Jackson’s trust led to public fights because he never transferred his assets.
Gifting is one of the easiest ways to avoid the new estate taxes. The law allows anyone to give $13,000 a year. Plus, you can pay a loved one’s medical bills or college tuition without gift taxes if you write the check directly to the provider.
"You can take advantage of this very brief window we have, because cause the government give’th and the government take’th away," said Mayoras. "We need to act now and take advantage of the laws while we have them.”
Married couples have the opportunity to double the exemptions at the federal and state level, and Mayoras said you really need to seek the advice of a specialized estate planner to make sure you you have the proper planning in place.
The paperwork and rules can get complicated.
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