Common Post-ATRA Estate Planning Mistakes

A false sense of security can lead a client (and his or her adviser) to make mistakes.

estate planning imageThe American Taxpayer Relief Act of 2012 (ATRA), P.L. 112-240, changed the game in estate planning by significantly increasing the amount of wealth that a taxpayer may pass free of federal gift and estate tax to beneficiaries. Many advisers and clients who are under ATRA’s $5.34 million exemption (inflation-adjusted for 2014) believe their past planning is sufficient, that estate taxes are no longer relevant as part of their planning, and no further action is required.
This false sense of security can lead a client (and his or her adviser) to make several mistakes. This article examines three of them.

  1. Mistake: Ignoring the impact of the state estate tax
  2. I recently had a telephone conversation with a very angry client whose mother had recently died. Her mother’s net worth was under the federal exemption, and I told her that the Massachusetts estate tax was estimated to be $160,000. I wanted her to reserve the cash now to pay the tax instead of investing it. All the publicity about the increased federal exemption had led the daughter (and many Americans) to believe that estate taxes were no longer relevant. I explained to her that her mother had been very aware of the Massachusetts estate tax and did not want to gift any of her assets to reduce it, as she had begun her planning when her estate would have been subject to a much more significant federal estate tax.

    Many states have an estate tax, and the rates in some rise as high as 20%. Fewer people paid attention to state taxes back when the federal estate tax exemption was much lower. Now that the federal estate tax is out of play for some of them, clients need to revisit their planning for state estate taxes.

    This is especially true for clients who have real estate or tangible personal property located in more than one state. That’s because the estate may be subject to state estate tax in several jurisdictions and there may be a dispute as to which state the decedent was domiciled in. It is important to review the plans of those clients and consider what options exist now.

  3. Mistake: Blind reliance on “portability”
  4. For federal estate tax purposes, the gift and estate tax exemption is now portable, meaning that if one spouse does not fully use his or her exemption during his or her lifetime, the surviving spouse can take advantage of it later.

    While clients and advisers may rely on portability as a default strategy, other considerations should be taken into account. Portability does not include an inflation-adjustment factor for the first spouse to die’s exemption. (This is different from a credit shelter trust where the funded assets and their appreciation will bypass estate tax at the death of the surviving spouse.) Portability is federal and is not recognized at the state estate tax level.

    Portability is an important planning strategy, but it should not be used as the absolute strategy. All factors should be considered and reviewed on an ongoing basis before assuming it is the “right” answer.

  5. Mistake: Failing to understand that the cost of long-term care may cause more significant erosion to family wealth than estate or income taxes

Families whose assets are under the exemption threshold and no longer have to plan to avoid or reduce the estate tax should still be concerned about the erosion of the family’s wealth. With an aging population that is living longer and needing additional assistance with custodial care, the key goals of estate planning could very well shift. Instead of focusing on how they can help clients protect their accumulated wealth from taxation, CPA planners may concentrate on helping clients protect their accumulated wealth from the escalating cost of health care. While the focus may change, the need for financial planning will be just as critical. The CPA, as a trusted adviser, is well-positioned to start that vital conversation and keep reviewing it as the client’s situation changes.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

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