A person may feel average in many areas of his or her life in Michigan. The individual might view his or her job, marriage and/or financial situation as being mediocre, so he or she doesn’t see the point of going through the same type of estate planning that the “rich and famous” often pursue. However, an estate plan isn’t important just for the super wealthy — it’s necessary for everyone who wishes to properly pass on assets to beneficiaries. A recent law enables married people to more easily minimize their tax burden when passing on their assets to others.

The law, called the American Taxpayer Relief Tax Act of 2012, has made it possible for widows and widowers to benefit from the estate tax exemption from a late spouse and add it to their own. This means that married individuals can transfer slightly over $5 million to each tax-free. The amount will go up to nearly $7 million in a decade and $9 million in two decades, in order to adjust for inflation.

For this to take place, the executor of the late spouse’s estate must timely file an estate tax return. Before the new law was put into effect, when the second spouse passed away, all money above the exempt amount that did not go to charity would be taxed. In other words, the exemption of the first spouse would be lost. Accordingly, people had to create a special trust, called a bypass trust, or even leave one’s assets to someone other than a spouse in order to avoid the tax penalty. Now, this is no longer necessary.

Passing assets to a loved one can be a complicated process. However, it is essential — no matter a person’s socioeconomic situation in Michigan. Staying abreast of new laws, such as the American Taxpayer Relief Tax Act of 2012, when creating an estate plan may enable a person to minimize estate taxes and be sure that his or her beneficiaries have immediate access to the assets passed down to them.

Source: Forbes, Estate Planning For The 99%, Deborah L. Jacobs, Jan. 20, 2014