Prepare Your Estate Plan for Changes in Tax Rules

By David Chazin - In conjunction with Lincoln Financial Advisors Corp., a registered investment advisor

Checking language and adding flexibility makes your estate plan less vulnerable to the whims of Washington.

Federal estate tax laws have changed four times since 2008, and they’re scheduled to shift again at the end of this year. The constant flux can make it hard to know when to adjust your plan and what changes to make. Here is a primer on how you and your Chevron colleagues can best prepare.

Currently, the first $5.12 million of your estate, per spouse, is exempt from estate transfer taxes. Amounts after that are taxed at a rate of 35%. But on January 1, 2013 the exemption is scheduled to revert back to $1 million, while the maximum tax rate increases to 55%. Most Chevron employees slide under the $5.12 million exemption, but many will be affected when it reverts to $1 million.

Regardless of what happens with estate tax laws, you can still draft an estate plan that stays relevant and reflects your wishes, says Deborah L. Jacobs, a senior editor at Forbes and author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide.

Jacobs warns against rushing to change your will and/or trust(s) every time Congress changes the tax code. She says it’s more important to review your estate plan after major life events— for example, the birth of a child/grandchild, an illness, or a divorce. You may also want to review your estate plan if you leave Chevron or experience a sudden change in your family’s finances. And be aware, if you don’t have a will or trust, you may be subjecting your family to probate, which can be very costly and time-consuming, so we should address this quickly.

When reviewing your estate plan, make sure the language it uses doesn’t leave you vulnerable to changes in the law, says Jacobs. For example, your plan may specify that a trust should be funded up to the current estate tax exemption or a certain percentage of that limit, which will maximize the benefits of the current law. But a change in exemption levels—say, from $1 million to $5 million—could fundamentally alter the role the trust plays in your estate plan.

For example, consider the case of “AB trusts,” popular tools used by Chevron employees and their spouses to pass assets to their heirs. One strategy for these trusts is to leave the full estate tax exemption to children while leaving the remainder of the estate to the surviving spouse. But if the exemption amount has increased since you drafted your estate plan, you could end up giving your entire estate to your children—leaving your spouse with nothing.

While some tax law changes can complicate existing estate plans, other rules are designed to add flexibility to the estate planning process. Case in point: A new provision enacted last year (and set to expire at the end of this year) allows surviving spouses to add any unused portion of their deceased spouse’s $5.12 million exemption to their own exemption. That means couples can pass up to $10.24 million of their estate to their children tax-free, without needing a complicated estate plan.

On the other hand, disclaimer trusts provide another way to add flexibility to your plan. With these trusts, the surviving spouse can “disclaim,” or refuse, any of the inherited assets, landing those assets in a separate, tax-exempt trust that can be passed on to your heirs. The catch is that the ultimate decision rests with the surviving spouse. “You can either take your chances with portability or create a disclaimer trust,” Jacobs says. “Once you’ve decided, relax and forget about it.”

The estate tax uncertainty makes for fiery debate in Washington and heartburn among tax advisors—but it doesn’t have to cause you or your Chevron colleagues stress. Of course, if you don’t have an estate plan in the first place, you should talk with a financial planner or meet with an estate attorney in the near term.

A good estate plan also accounts for your surviving spouse’s needs if, heaven forbid, some ill fate were to befall you. That’s why Chevron offers two major retirement savings tools – the ESIP and the pension (CRP), which allows you to pass any remaining money onto your heirs if you take a lump sum cashout – plus additional plans for executives.

I’d be happy to sit down with you to discuss the appropriate solutions for making your estate plan less vulnerable to changes (or even putting one in place), while still helping you to achieve your estate planning goals. Because I work with Chevron executives, managers, employees and retirees, I'm knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my Chevron clients and you can ask them how working with a financial planner has helped them.

Please contact me at (925) 659-0251 with specific questions or to schedule a time to meet in either my San Ramon or Point Richmond office. Or for more information, please visit our website at

The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.