This is a great question – and should be asked by everyone. Even though Congress raised the amount exempt from estate tax to $5 million and brought back the “step-up” basis rule, it doesn’t mean you don’t have to be in any hurry to plan.

Let’s start with the obvious first: If your estate is worth $5 million or more, it’s really a no brainer that you will need to do a little planning if you don’t want your heirs to pay taxes. And if you’re a land owner that wants everything to stay intact after you are gone, you better get a fire lit underneath your seat and get moving.  There is a new law this year that allows a person to pass $5 million to his/her heirs while he/she is still living and breathing, but it is currently scheduled to convert back to $1 million in 2013 – as is the estate tax exemption amount. This makes a pretty compelling case to start passing assets to your family now.

Then, there are the worries about children and grandchildren inheriting sums of money, investments, or other assets, and not being motivated to succeed on their own or just throwing it away. And what about the “step-up” basis rule? If you pass your assets to your heirs while you are still living, they won’t be able to take advantage of this rule.  They will receive your assets at what you paid for them. Which means that when they go to sell those assets, they’ll pay capital gains on the difference between the selling price and what you paid for them. Yet if they receive your assets after you die and receive the “step-up” basis, they will have a cost basis at the value of the asset the day you died.

Now for the not so obvious: If your estate is not over $5 million, you might want to mull over some other extremely important issues like protecting your assets, the “step-up” basis rule, or ensuring your legacy is passed according to your wishes. Just because you will be exempt from Uncle Sam’s estate tax, doesn’t mean you shouldn’t plan. Let me tell you a story about Mr. and Mrs. Wilson.

Mr. Wilson passed away a few years ago without a will. He figured he wanted everything to go to his wife so it didn’t matter, which was true to a certain point. Mrs. Wilson became very lonely and decided she needed a companion, so she married Mr. Mitchell, the infamous “Dennis the Menace’s” grandfather. Soon thereafter,  Mrs. Wilson (now Mrs. Mitchell) became ill and passed on without a new will in place. “Hey, Mr. Wilson!”…. Dennis had won again. No planning on the Wilson’s part led Mr. Mitchell to inherit their estate, and he had named Dennis his sole heir. Mr. and Mrs. Wilson’s children never saw a dime.

Yes, these characters are fictional, but I assure you that this scenario happens time and time again. Lack of planning has landed assets into the laps of many who were never intended to be the heir. Just think about your children and their spouses for a moment. You may love your son-in-law or daughter-in-law dearly, but what if something happens to your son or daughter and your assets are left to that son-n-law or daughter-n-law? What if they remarry? What if they pass away and your assets go to a person you never even met instead of your grandchildren?

Addressing this type of issue is part of what we call “Legacy Planning.” In fact, this one scenario is only the tip of the iceberg. We have a series of questions that not only address the basics of estate planning, but also family support issues, second marriages, charitable gifting, drug or alcohol abuse, spend-thrifts, etc.

I know…it’s a lot to think about. And we have barely scratched the surface. My recommendation to you is to start planning today with your Life Planning team. It’s your call, but my thinking is 2011 may be an opportune time to lay out your Legacy.

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.