It's in the news - Congress is considering the permanent repeal of the estate tax. What does this mean for you and your family? Let's review. Under the current law the estate tax has not been repealed - it is merely being phased out through 2010 - for one year only - and is scheduled to return in 2011. Congress is therefore considering repealing the portion of the law that would bring the estate tax back beginning in 2011. It is also considering other alternatives to the permanent repeal of the estate tax, including simply raising the amount of the individual estate tax exemption (currently $2,000,000) and also lowering the effective tax rate that is applied to estates above the estate tax exemption amount (currently 46%).

Whether the estate tax is permanently repealed or not there are two things most people don't know that they need to know about how the tax system will affect their estates. First, the estate tax has already been repealed, and then re-enacted, three times in our nation's history. Since no Congress can bind any future Congress, even if estate taxes are permanently repealed a future Congress could re-enact the tax. Second, regardless of what happens with the estate tax, there is another significant change in the tax law that begins in 2011 - the modified carryover basis system. This new law will dramatically change how inherited assets are taxed, for income tax purposes, when they are later sold. Beginning in 2011, while some assets inherited from a decedent will receive a new cost basis in the hands of the recipient, some will retain the decedent's original cost basis - that is, the recipient of a decedent's estate will inherit, not only the asset, but the decedent's cost basis in the asset as well. If the asset has appreciated over the decedent's basis, the recipient will pay capital gain taxes when he or she sells the asset.

Estate planning has traditionally been focused, rather myopically, on estate tax planning. If you currently have an estate plan in place, how does your plan deal with either the possibility of permanent repeal of the estate tax, or the implementation of the modified carryover basis system for inherited assets? If the estate tax is repealed, and you live long enough to see it, why would you still need an estate plan?

10 Reasons To Plan Your Estate That Have Nothing To Do With Estate Taxes

1. What if you become disabled or legally incapacitated? With proper estate planning, you can choose who you wish to make medical decisions for you, and you can provide instructions regarding what sort of treatment you may or may not want if you are unable to speak for yourself due to illness or injury. You can also choose who you wish to have control of your personal and financial affairs, and require them to follow your instructions. You can also provide for the replacement of your lost income through disability insurance. Without proper estate planning, the court appoints someone to make medical decisions for you and handle your personal and financial affairs, the management of your affairs is delayed, is made public (and more expensive), and sufficient liquid assets to care for you and your loved ones may not be available.

2. Who will raise your children to adulthood? With proper estate planning, you determine who will raise your children, and how, and where the funds will come from to provide for them. Without proper estate planning, the court chooses a Guardian for your minor children, and provides no instructions.

3. How will your loved ones inherit your assets? With proper estate planning, you determine who, when, and how they will receive your assets. Without proper estate planning, the state determines who will receive your assets, and if they are over 18 they will probably receive them all at once. If your loved ones have difficulty managing their own finances, have outstanding debts, or are in unstable marriages, an outright distribution of your estate may not be in their best interests.

4. What if you have a "Blended" (Multiple Marriage) Family? With proper estate planning, your wishes and priorities prevail - your choices of who gets what are respected. Without proper estate planning, your wishes and priorities are not known, so they are not even considered. Your spouse or step-children may control your property and it may end up in the hands of unintended beneficiaries.

5. What if you have a spouse or loved one with "special needs"? What if your spouse, child or grandchild suffers from a physical or emotional disability, or a chemical dependency? What if they have demonstrated immature spending habits or lack investment experience? With proper estate planning, assets can be made available without risking loss of governmental benefits, and losses can be prevented because assets were transferred outright to someone who should not receive them. Without proper estate planning, your loved ones who are or might someday need governmental assistance might be rendered ineligible simply because of the way that you left assets to them, forcing them to use your assets for their basic needs.

6. You want your money to stay in your family. With proper estate planning, your assets can be protected in the event your spouse remarries after you are gone. An inheritance can be protected from the ravages of a divorce, or from lawsuits that your spouse or child may become involved in. Without proper estate planning, your assets cannot be protected.

7. Can your spouse and children survive financially? With proper estate planning, you can provide investment guidelines and instructions, or place the investment of your property in the hands of trusted advisers and professionals. You can also provide for the replacement of lost income through life insurance to ensure that your family can maintain their lifestyle. Without proper estate planning your remaining assets may provide insufficient income which may require your family to liquidate assets to maintain their lifestyle.

8. What will happen to your Pension and Retirement Plans? With proper estate planning, you determine the optimal plan for the distribution of your IRA, 401(k) or other pension plan assets, in consultation with your financial adviser and attorney. Your beneficiaries may be able to defer, or "stretch out" distributions, and defer the income tax consequences of these distributions, over the longest possible time. Without proper planning, your wishes regarding distribution of these assets may not be carried out after you are gone, and your beneficiaries may incur unexpected tax consequences.

9. What will happen to your Business? With proper estate planning, you choose who will manage the business when you are no longer capable of working, how the ownership of the business will be transferred after you are gone, and whether your business will be carried on or sold. Without proper estate planning, there is no succession planning, and the family may lose control of the business.

10. The Probate (Estate Settlement) process is cumbersome and expensive. With proper estate planning, your affairs are kept private, probate is avoided, settlement costs are controlled, and your estate can be settled more efficiently. Without proper estate planning, your estate will likely suffer unnecessary fees and excessive delays, and the details of your estate are there for the public to see.

What Should You Do Now?

The biggest problem facing estate planning attorneys in this time of uncertainty is educating clients to the reality that estate taxes have not yet been repealed, they may never be repealed, and even if they are repealed the client may either pass away before the repeal takes effect, or they may be re-enacted after it is too late for clients to do anything about it. We also need to educate clients that, whether or not estate taxes are actually repealed, there are important changes coming which will affect how inherited assets will be taxed under the income tax system. Increasingly, our job is to help clients understand that proper estate planning has little to do with estate tax planning, but rather is more about ascertaining the client's goals, educating them about the possibilities, and designing a plan that fits the client's particular objectives and is integrated into their overall financial planning. The current uncertainty about estate taxes has not eliminated the need for proper estate planning - it has merely shifted its focus.

If You Have Not Yet Prepared Your Estate Plan

If you have not yet prepared your estate plan what should you do? First, find a competent estate planning attorney, one who is both thoroughly knowledgeable about the current law and is willing to spend the time needed to ascertain your goals and learn about what is important to you. Then, you should make a commitment to participate fully in the estate planning process and see it to its fruition. Estate planning is a process - not a discrete transaction. A good estate plan needs to be comprehensive, yet flexible enough that it can be amended to keep pace with changes in your personal and family situations, as well as changes in the law. If You Have Already Prepared Your Estate Plan

If you already completed your estate plan, ask yourself these questions:

1. Was your estate plan prepared by a competent estate planning attorney and is your estate planning attorney still available to assist you in the administration of your affairs?
2. Has your estate plan been reviewed and revised in light of the recent changes in the law, and is it flexible enough to adapt to these changes as they are phased in?
3. Has your estate plan been reviewed in light of your current financial situation?
4. If you have a living trust are all of your assets properly titled in the name of your trust?
   1. If your personal residence was transferred to your trust have you since refinanced the mortgage or any other debt secured by the property? If so you may have been required to transfer the property out of the trust and you may have overlooked the need to transfer the property back into your trust.
   2. Are all your financial accounts, as well as your stocks, bonds, and business interests property titled in the name of your trust?
5. Are all your primary and contingent beneficiary designations for retirement plans, pension plans, annuities and life insurance up to date? Will your beneficiaries be able to defer distributions from your retirement plans for the longest possible time?
6. Do your advance health care directives (Durable Powers of Attorney for Health Care, Living Wills, etc.) still reflect your current wishes and will your health care agents be able to be located quickly in an emergency? Have you prepared a HIPAA authorization that will allow your loved ones access to your protected medical records when needed?
7. Do you still have complete faith and confidence in the ability of your chosen successor trustees and health care agents to care for you and your loved ones the way you would want them to when the time comes?
8. Do your successors and loved ones know where you keep your original estate planning documents so that they can be located in an emergency?
9. Have you made any pre-need burial, cremation or memorial arrangements, and if so, is the documentation for these kept with your estate planning documents so that your wishes can be carried out?
10. Does your estate plan do for you and your loved ones all that it can or should?

If the answer to any of these questions was "no" you should review your estate plan with a competent estate planning attorney right away. Any estate plan can fail to meet your needs and expectations if it was either improperly or incompletely prepared in the first place, or if it is not periodically reviewed and updated. You owe it to yourself and your loved ones not to overlook this critical component of your personal financial planning.

James K. Burau is an estate planning and small business attorney whose practice focuses primarily on wealth preservation planning for higher net worth individuals, small business owners, clients interested in tax-efficient charitable giving strategies, and those with significant pension and retirement assets which require special attention. He also provides essential estate planning services to younger clients with small children, unmarried couples and single clients, and assists clients with the acquisition and sale of businesses and real estate. Jim is licensed to practice law in Nevada and California and has been providing legal services from his offices in North Lake Tahoe since 1990.