With the federal estate tax exclusion at $5 million through 2012, a vast number of estates will not incur any federal tax. Even if the exclusion drops back to the $1 million dollar limit in 2013, the majority of estates will have little or no federal estate tax liability.
On the surface, it would seem there's little need to do estate planning for many clients, particularly if it's clear that their estate will not require a federal estate tax payment.
This is only part of the overall story, however. To ignore estate planning can be a huge mistake. There is a long list of estate settlement costs that will have to be paid regardless of the size of the estate. And life insurance is still the best way to cover these expenses.
Clients don't need a seven-figure estate to incur funeral costs, medical expenses, credit card or loan debt, and the variety of taxes and fees that are applied during an estate settlement.
Debt resolution can also include a mortgage, school loans, recurring bills to survivors and unfunded educational costs. In smaller estates, these expenses represent a much higher percentage of the overall estate and can absorb much, if not all, of the inheritance before it's passed on to family and loved ones. Which asset will they liquidate to pay these bills? How much of a discount will they have to accept on assets that are put on the block?
Funeral expenses can run between $5,000 and $10,000, even by modest standards. End of life medical expenses, whether hospital bills or long-term care costs, can come to another $10,000 and climb to more than $100,000. Income taxes and property taxes must be paid. If all that is not enough, there are 20 states that impose either a state estate tax or a state inheritance tax ranging from 7% to 41%. And two states, New Jersey and Maryland, impose both.
Unless a client has a family member who is an accountant or attorney, there will be legal fees, appraisal fees, executor or trustee costs that need to be paid.
Many believe that having a will is all that's necessary to exclude an estate from probate. Sadly, this is not the case. Probate costs are high and will further deplete assets that were intended for family members or charities. Probate can also be a long, drawn out process. Which assets will be liquidated to pay for these expenses?
It doesn't need to be this way, however. Probate expenses can be completely avoided with a revocable living trust.
Gregory E. Schwabe, FLMI, is national marketing director for First American Insurance Underwriters, a Needham, Mass.-based insurance brokerage firm specializing in coaching successful producers. During his 25 years in the life insurance brokerage business, Schwabe has been a presenter at national meetings and has spoken at life association events and career agency offices about working in the brokerage marketplace. Contact him at (800) 952-0820 or 
