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By Christine Benz | 03-17-2011 01:19 PM

No Head in the Sand on Your Estate Plan

Even folks who are currently under the estate-tax exemption could save their heirs lots of money, difficulty, and time by crafting a flexible estate plan now, says estate-planning specialist Tom Abendroth.

Christine Benz: Hi, I'm Christine Benz fpr Morningstar.com.

The closing days of 2010 brought a flurry of changes on the estate tax front. Here to discuss them and what they might mean for you is Tom Abendroth. He is an attorney at Schiff Hardin and estate planning specialist.

Tom, thanks so much for coming in.

Tom Abendroth: You are very welcome.

Benz: So, let's discuss some of the big headlines associated with the changes in the estate tax laws. Now, there is a $5 million exemption from the estate tax. So, I think a lot of people might be thinking, "Well, with numbers that large, maybe this is a whole area that I don't need to worry about." What's your take on that question?

Abendroth: It is a natural reaction, Christine. First of all, everyone has to remember that these current provisions, the $5 million exemption amount, 35% tax rate, are only guaranteed for the next two years.

Benz: So, through the end of 2012.

Abendroth: That's right. At the end of 2012, all of this expires unless Congress does something first. Everyone expects them to do that and to extend the law, but of course there are no guarantees. So, from a tax standpoint, skipping all the planning only works if you know you're going to die within the next two years.

From a non-tax standpoint, of course, all the other things that you need to worry about in estate planning still exist: Do you have minor children; do you have a child with special needs; do you have adult children who are not ready for an inheritance yet, so maybe there should be a trust for them? And for a spouse, do you want property outright where the spouse can dispose of it to anybody, including a new spouse? Or do you want that in trust? All those decisions, of course, still are ones you need to deal with.

Benz: And they're kind of evergreen decisions.

I think, a natural question is, we've seen these pretty substantial changes in the estate tax rules over the past few years, and people may be wondering, "Well, how do I create a plan that stands the test of time? That can actually be flexible and allow my plan to be a decent plan regardless of how we see these laws moving?" What's your take on how to do that and what provisions to put into a plan so it is flexible?

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