A Simple Will May Still Not Do / With the federal government only taxing big estates, many clients are asking their financial advisers: Do I really need an estate plan at all?

Arden Dale for the Wall St Journal writes: With the federal government only taxing big estates, many clients are asking their financial advisers: Do I really need a estate plan at all?

Some of them are hearing from friends who, despite having millions of dollars in assets, are deciding a simple will is all they really need.

“There is a degree of truth in this, and where appropriate, we always prefer a more simple structure than one that is unnecessarily complicated,” says Michael Krol, a planner at Waldron Wealth Management, an advisory firm in Pittsburgh with $1.1 billion under management.

But, he said, there is more to consider than the federal income and gift tax exemption, now set by law at $5.25 million with yearly adjustments for inflation.

Trusts, partnerships and other arrangements that reduce taxes often serve other purposes as well, and will continue to hold value for some with estates below the tax threshold. They may protect an estate against potential creditors. Or they could be set up to ensure that a person’s biological children inherit if a spouse remarries and starts another family.

State estate taxes also need thought. Many states tax smaller estates: New Jersey, for example, taxes estates worth more than $675,000.

Advisers are telling clients to think first about where the money will go eventually–to children, siblings, other relatives or friend. That can make a difference in whether a will is sufficient. Parents may decide to create a trust to provide for minor children should they both pass away unexpectedly.

Michael Joyce, an adviser in Virginia, does not advocate for simple wills –one that doesn’t provide for trusts and other arrangements. Too often, he said, owners have to amend them if there’s a change in the law or their circumstances.

“We recommend that the documents are as ‘all weather’ as possible,” said Mr. Joyce, president of JoycePayne Partners in Richmond, Va., with $470 million under management.

A young married couple, both doctors, recently asked Mr. Joyce whether they should just make wills, given the new tax exemption level. He suggested that instead they create estate documents, including a credit shelter trust that could protect against liability.

Limitations on using the exemption can be another reason not to rely on a simple will (sometimes called an “I love you” will). There are conditions, for instance, on the “portability” which one can use the other’s $5.25 million exemption.

Together, a couple can leave around $10 million tax-free. But a surviving spouse can lose out on the deceased spouse’s $5.25 million simply by not filing an estate tax return when the person dies. And if a widowed person remarries, heirs may not get the full $10 million tax-free if their new spouse dies first.