Ladies, have you reviewed your estate plan lately?
No? Well, get moving now especially if you are women of wealth. Why this sense of urgency? The tax laws changed and may have an adverse effect on your situation if your spouse were to pass away this year or next.
Adverse affect? How about having all the money going to your children vs you? Yes, it could happen. Here’s why – due to the blah blah bah, the estate tax exemption has increased to $5 million (for 2011 and 2012 from $3.5 million in 2009). What this means is that when one passes they generally will not be subject to estate tax unless the amount of your investments, property, cash, real estate etc (your net assets) is greater than $5 million. Sounds great – yes?
Not always – here is the catch. Many wills are drawn up to say that the amount of your spouse’s assets that will go to your kids is an amount equal to the federal exemption amount and the remainder of the assets to you. This may have worked fine when the exemption amount was $3.5 million, but it may not work so well at $ 5 million.
Quick example: All the assets you and your husband have are in his name and are worth approximately $5 million. He passes and his will dictates that federal estate exemption amount goes to your children, the remainder to you. Let’s do the math.
Total Assets : $5 Million
Amount to kids: $5 Million
Amount to you: 0
Result you want?? For many the answer is a solid NO! So run, don’t walk to your estate attorney now and see how this tax change has affected your situation.
You may be thinking that you don’t have to worry about estate planning because you don’t have any where near $5 million. But you would be thinking wrong. Estate planning is not only about estate taxes, it is really about making sure what you want to happen with your “stuff” (including your children) after your demise happens.
Too often, people hesitate to do their wills because they don’t know whom to choose as guardians for their young children or can’t decide how to split their money between their kids. The upshot here is that doing nothing is a decision unto itself. Basically you have decided that the government will do it for you. Is that really what you want to happen?
Bottom line: now is a great time to review your estate plan., no matter who you are and/or how much money you have.
Susan Hirshman is president of SHE LTD, a consulting firm focused on enhancing the financial literacy of women globally. She is the author of- Does this Make My Assets Look Fat? – a women’s guide to finding financial empowerment and success. Formerly, she was a Managing Director, Wealth Manager with one of the world’s top financial services organization.