Karl Klinger, CFP®, CLU®

Providing Personal and Small Business Financial Services

Virginia Beach, Virginia

Estate planning is an essential part of anyone's personal finances -- no matter how wealthy she may be.  But even for those who have been diligent about planning for their spouses and heirs, this is a year when it may make particular sense to re-examine your strategy.

With the nonstop flurry of legislative activity in Washington, Congress has still not acted on the phase-out this year of the estate tax.  If nothing is done this year, the heirs of any person who dies in 2010 won't be liable for any federal estate taxes, no matter how big the estate.  (Although the carryover cost-basis rules for 2010 may give rise to additional planning considerations.)

Yet the potential bad news will come next year when the estate tax is scheduled to return with a vengeance on all estates over $1 million in size with a potential return to a 55 percent top tax rate.  (The threshold was $3.5 million for individuals in 2009.)

It's worth a trip to your estate planner and your Certified Financial Planner^™ professional to help ensure your paperwork is in order and the previous plans you've made won't cause problems.

Family trusts -- also called bypass or credit shelter trusts -- are of particular concern.  These trusts work this way:  Individuals add what's known as a formula clause to their will or revocable trust that distributes up to the maximum amount of assets that can pass free of estate tax to the trust if the individual dies before his spouse.  The creation of the trust helps ensure that once the second spouse dies, neither these assets nor any appreciation on them will be subject to estate tax.  But if you die this year, a failure to address the formula clause could potentially cause you to unintentionally disinherit your spouse.

The bottom line:  It's worth making a call to your estate planning attorney to make sure your plans are still in order.

And what if you've never made an estate plan?  Even if you're not particularly wealthy, you definitely need one.  Here are some specific things you should do and make sure you have in place:

Make a financial plan:  You can't have a very effective estate plan without a full grip on your finances.  First, sit down with a Certified Financial Planner^™ professional to gain an understanding of all the various aspects of your finances from your income and investments to your debt.  Add various facts about your family situation to the mix, and that's the starting point for an estate plan.

Make a will your first priority:  Unless you have a very complicated estate, a standard will with wording tailored to your state of residence may be satisfactory to properly dispose of your assets, but it's generally a good idea to get feedback from an estate attorney to make sure your will fits you and your financial situation.