A year ago, Congress dramatically raised the federal estate tax exemption, which for 2013 was $5.25 million (or $10.5 million for a married couple). And that caused some people to mistakenly believe that they no longer need to think about estate planning if their assets are less than $5 or $10 million.

However, nothing could be further from the truth. And people who don’t keep their estate plan up-to-date are making a big mistake that could still be very costly to them and their families.

There are a multitude of reasons for this, but here are just a few:

Protecting your heirs. Many of the techniques that people have used in the past to avoid estate taxes – such as trusts – have lots of other purposes in addition to saving taxes.

For instance, leaving assets to someone in a trust can protect them over the long term if they’re not good at managing money. Trusts can also shield children from losses in the event they get divorced, face a lawsuit, or start their own business. And if you have children from a former marriage, a trust can be a way to care for your new spouse if something happens to you, while still protecting your children.

Trusts can also protect children and grandchildren if they should ever have a problem with gambling or other addictions, or if they have special needs.

All of these benefits still exist regardless of the level of the federal estate tax exemption.

Other kinds of taxes have gone up. While the federal estate tax is less of a problem, other taxes – such as income and capital gains taxes – have increased recently. There’s also a new 3.8% surtax on investment income.

So you should know that techniques such as trusts, LLCs, and family limited partnerships, which in the past were used primarily to avoid estate taxes, can also be used to reduce these kinds of taxes, by giving you the flexibility to funnel income and capital gains to family members in the lowest tax brackets.

Techniques such as charitable remainder trusts can also be used to shift income taxes from current years until post-retirement, lower-bracket years.

And with capital gains taxes going up, it’s increasingly important to use estate planning to adjust your heirs’ basis in the property they inherit.

Most of the time, if a person dies owning assets that have appreciated in value, his or her heirs receive the assets with a new, “stepped-up” basis as of the date of death. Suppose Martha buys some stock for $50,000, and many years later it’s worth $90,000. If Martha sells it, she’ll have to pay tax on a $40,000 capital gain. But if she dies and leaves the stock to Lou, then Lou will have a “stepped-up” basis of $90,000, and if he sells it right away, he won’t owe any tax.

While capital gains basis is typically stepped up at death, it isn’t always, so it’s important to engage in estate planning to make sure your heirs aren’t stuck with a large and unnecessary tax bill.

Health care costs. If you’re not super-wealthy, health care costs in later years can be a bigger destroyer of wealth than the estate tax ever was. It’s critical to consider health care in retirement as part of a complete estate plan.

State estate taxes. While the federal estate tax is now a problem only for the very wealthy, many states impose their own estate taxes, and these often kick in at much lower thresholds. New Jersey, for instance, imposes a tax on all estates with assets of more than $675,000. Six other states have estate tax thresholds of $1 million or less. It’s still important to plan around avoiding these taxes.

In addition, some states impose inheritance taxes. Inheritance taxes are different from estate taxes, because estate taxes are paid by a dying person’s estate, while inheritance taxes are paid by the dying person’s heirs. Inheritance taxes don’t depend on where the heir lives; they’re based on where the dying person lived or owned property. So if you live in Florida but you inherit assets from a relative in Arizona who owned property in Iowa, you might owe Iowa inheritance tax.

In some states, the inheritance tax rate varies depending on the heir’s relationship to the dying person – so a child might pay one rate, a cousin might pay another, and a lifelong friend might pay yet another.

It’s important to plan for this, too, if for no other reason than to compensate your heirs if you’re going to saddle them with unexpected taxes after you die.

Family issues. Estate planning has always been about more than just taxes, or even just financial assets. It’s about family. What will happen to your family home, or a beloved vacation home? What will happen to a family business? If you have minor children, how will they be taken care of? Who will receive possessions that have sentimental value? Will your children feel that they’ve been treated fairly, and be encouraged to get along and use their legacy in accordance with your values? All these issues can (and should) be dealt with in a complete estate plan.

Social Security retirement benefits by themselves are generally not taxable – but people with even a modest amount of income in addition to their Social Security payments may end up having to pay taxes on their benefits.

The tax result is determined by something called “combined income,” which is one-half of your Social Security income plus all your additional income (including non-taxable interest).

For married couples, if your combined income is between $32,000 and $44,000, you may have to pay tax on up to 50 percent of your benefits. If your combined income is more than $44,000, up to 85 percent of your benefits may be taxable.

For single filers, Social Security may be taxable up to 50 percent if your combined income is between $25,000 and $34,000, and up to 85 percent if your combined income is above $34,000.

If you owe tax on your Social Security benefits, you can either make quarterly estimated tax payments or ask the government to withhold taxes from your Social Security checks.

You can find more information in the IRS’s Publication 554, Tax Guide for Seniors, and Publication 915, Social Security Benefits and Equivalent Railroad Retirement Benefits. These are available at www.irs.gov or by calling (800) 829-3676.

After a Medicaid recipient dies, the state will attempt to recoup whatever benefits it paid for the person’s care from his or her estate. This process is called “estate recovery.”

For most Medicaid recipients, their house is the principal asset available. Unfortunately, this usually means that the state can order a sale of the house, and the person will be unable to leave his or her family home to his or her family.

There are some techniques, though, that may help protect at least a share of the family home. How well these techniques work depends in part on the state where the Medicaid recipient lives and where the house is located, but it’s worth exploring with an attorney whether they would work for you.

Life estates. One idea is to give the house to your children, but to retain a “life estate,” which is the right to live in the house for as long as you are alive. After you pass away, the house will go to your children automatically, so it won’t be part of your “estate” when you die.

A life estate gives you the right to continue to live in the house (or rent it to others). However, you will still be responsible for taxes and maintenance, and you won’t be able to sell the house without your children’s permission.

While simply giving away a large asset like a house might result in a very long period of ineligibility for Medicaid, giving away a house but retaining a life estate can sometimes avoid this problem, at least if you continue to live in the house for a year or more.

Trusts. Another idea is to put your house into a trust. Again, when you pass away, the house won’t be part of your estate, because it will be owned by the trust.

Trusts can provide you with more flexibility than life estates, but they are also somewhat more complicated.

With both life estates and trusts, there can be significant consequences for gift, estate and capital gains taxes, so you’ll want to consult with an expert before you take any action.

It’s not uncommon for an assisted living facility to try to force a resident out, or to refuse to renew the person’s lease.

Often, the reason is that the facility believes that the resident’s condition has deteriorated to the point where it can no longer provide all the services that he or she needs.

But there might be other reasons, too. Some facilities don’t want to keep people who are eligible for Medicaid, even if the facility is approved to participate in Medicaid. And sometimes a resident is simply viewed as a “troublemaker.”

If you or someone you know is facing an assisted living discharge that you believe is unfair, it may be possible to fight it. The legal rules, however, are often unclear, and vary a great deal from location to location.

In some states, for instance, an assisted living resident is considered a tenant just like any other tenant. So if the “landlord” tries to evict someone and the tenant refuses to leave, the landlord will have to go to court, and the tenant will be able to argue his or her side of the case before a judge.

In other states, it’s unclear whether landlord-tenant law applies, and if a tenant refuses to leave, the facility might be uncertain how to proceed. Either way, if the eviction really is unfair, the facility might be willing to find a compromise rather than go to court.

Some states have specific legal procedures by which you can object to a discharge. In these states, you might be able to file a complaint with the licensing board, or have a right to an administrative hearing.

In a few cases, it’s possible to claim that an eviction amounts to “disability discrimination.” Several federal laws say that landlords cannot discriminate against tenants on the basis of a physical or mental disability, and must reasonably accommodate them unless doing so would cause an undue hardship.

So, for example, if you’re being discharged because you’re now in a wheelchair and your assisted living apartment doesn’t have a ramp, you might be able to argue that the facility is required to install a ramp as a reasonable accommodation.

In general, fighting a discharge successfully is difficult, and it’s best to consult with a lawyer about your rights rather than trying to handle it on your own.

Seniors who have chronic illnesses and disabilities can now get Medicare coverage for skilled nursing and therapy services … even if those services will simply maintain the person’s present health status and aren’t likely to improve their condition.

This is very important news for people who have diabetes, heart disease, Alzheimer’s disease, multiple sclerosis, Parkinson’s disease, Lou Gehrig’s disease, arthritis, or the effects of a stroke, among other conditions.

Earlier this year, the government agreed to settle a class action lawsuit over this issue. That settlement has now been approved by a federal court – and what’s more, the settlement has been made retroactive to January 18, 2011, so if you were denied coverage for services after that date, you might be able to go back and re-apply for coverage.

The settlement applies to care in a skilled nursing facility as well as to home health care and outpatient therapy.

For decades, Medicare had a “rule of thumb” that coverage of these services was available only if they were likely to lead to an improvement in the patient’s condition. Treatments that weren’t likely to lead to improvement were considered “custodial care,” which Medicare doesn’t cover.

But this “rule of thumb” never actually appeared anywhere in the Medicare laws, the government now admits.

The change is effective as of right now. As a result, patients who have “plateaued” in their treatment but still need the assistance of a skilled professional such as a nurse or therapist are now eligible for all of Medicare’s standard benefits.

Seniors who are enrolled in Part A, which covers hospitalizations, will be eligible for up to 100 days in a skilled nursing facility (as long as it follows a three-day hospitalization), as well as up to 100 home visits following a hospitalization. Seniors who are enrolled in Part B, which covers doctor visits and other outpatient services, are eligible for potentially unlimited home visits.

It’s not completely clear to what extent the new policy will increase Medicare coverage for dementia. Many seniors with dementia simply need custodial care – unskilled help with routine activities such as eating, dressing, and bathing – and this kind of care wouldn’t be covered under the settlement.

However, if the services of a skilled professional might delay the progress of dementia, then those services might be covered. For example, Medicare might now cover occupational therapists who specialize in helping dementia sufferers.

In addition, Medicare might also begin covering speech therapists who teach stroke and Parkinson’s patients how to regain their communications skills.

Seniors who applied for Medicare benefits after January 18, 2011 and were denied due to the “rule of thumb” – and whose appeal period has expired – will be able to have those denials reviewed under the new standard. The government is still determining exactly how this review process will work.

IRAs can be an important part of estate planning, especially for savvy investors and business owners. But be careful – mixing your IRA and your business interests too closely can cause big tax problems.

The IRS can “revoke” an IRA, and deny you all its tax benefits, if you use the funds for certain improper purposes. This rule applies not only to you, but also to actions by your family members and any business or trust that is controlled by you or your family.

What can’t you do? You can’t buy, sell, or lease property to or from an IRA; you can’t borrow money from an IRA or lend money to it; and you can’t make personal use of IRA property.

So, for instance, you can’t invest IRA funds in a business you own, you can’t lend money from an IRA to a relative to start a business, and you can’t use real estate owned by an IRA (such as rental property) for personal purposes (such as a vacation).

In fact, if your IRA owns rental property, you should avoid making any repairs or improvements yourself, because the value of your labor might be considered an improper contribution.

Two Colorado business partners found this out the hard way recently.

The two each used about $300,000 in their IRAs to buy 50% shares in a new corporation. The corporation then used the funds, plus a bank loan and a promissory note personally guaranteed by the partners, to buy a fire-safety company.

Oops! The personal guarantees meant that the partners were indirectly lending money to the IRA. As a result, the IRS revoked the IRA, and it charged the partners more than $500,000 in taxes and penalties.

If you’re considering putting IRA funds into “alternative” investments such as real estate, art, or shares in a private business, be careful and consult an expert first.

If you’re donating assets to a charity, don’t scrimp when it comes to an appraisal and don’t try to file the tax forms yourself. That’s the lesson of a recent case from the U.S. Tax Court.

The case involved Joe Mohamed, an extremely successful real estate investor in Sacramento, California. Joe donated real estate he valued at $18.5 million to a charitable trust. Because Joe was a qualified appraiser, he valued the properties himself. He also filled out the relevant tax form himself to claim a deduction for the donation.

But the IRS denied any deduction for the real estate, claiming that Joe made mistakes on the form. And the Tax Court reluctantly agreed that the IRS was right.

For one thing, the IRS rules say that a donor of property can’t act as the appraiser. They also contain a laundry list of things that must be included with the form, such as the taxpayer’s basis in the property, which Joe didn’t include.

Joe argued that the IRS form was confusing. The court agreed that the form was confusing (the IRS has since changed it to make it easier to fill out), but the court said it was up to Joe to understand the form or hire a tax expert.

Joe also argued that he hired an independent appraiser after the IRS complained. The appraiser valued the property at more than $20 million, and in fact the trust sold most of the property shortly afterward for more than $25 million. But the court said this didn’t matter, because under the IRS rules the independent appraisal was too late to count.

So Joe’s do-it-yourself approach meant that he got no tax deduction at all for an enormous charitable gift.

This isn’t the first time the IRS has completely denied a deduction because someone didn’t follow the formalities. There have been other recent cases where a deduction was denied because an appraisal was conducted too long before or too long after the donation was made, didn’t include the complete laundry list of required items, or was made by an appraiser who didn’t have the proper qualifications or was connected to the donor in some way.

For instance, the IRS said that a high school principal wasn’t qualified to put a value on a donation of art supplies, and that an appraisal of partnership interests mistakenly valued the underlying assets of the partnership rather than the interests themselves.

If you or someone you know has an older estate plan that doesn’t carefully take into consideration the role of stepchildren, it’s a good idea to have it reviewed. If you have stepchildren – or if your children have stepchildren – it’s critical to make clear whether they’re included in your plans.

Take the case of Bill and Pat Clairmont. This North Dakota couple had a daughter, Cindy; a son-in-law, Greg; and several grandchildren including a grandson named Matthew. In 1996, they decided to set up a trust to benefit Matthew. Greg, their son-in-law, wrote the trust document.

Under the trust, Matthew would start receiving the trust funds when he turned 40. If he died before then, the trust funds would go to his brothers and sisters.

That all sounds fine … but sometimes things don’t go exactly as planned.

Five years after the trust was created, in 2001, Greg and Cindy divorced. In 2004, Greg remarried, and he had two more children with his new wife.

In 2011, Matthew died unexpectedly at age 25.

When it came time to divvy up the trust funds, Greg insisted that his two children with his new wife were among Matthew’s “brothers and sisters,” and they should therefore get an equal share of the money.

Naturally, Bill and Pat objected, and the case went all the way to the North Dakota Supreme Court.

Greg pointed to a North Dakota law that says that “brothers and sisters” in a will or trust includes stepbrothers and stepsisters, unless the document specifically says otherwise.

The court said that was true, but it took pity on Bill and Pat and said they clearly didn’t expect this result and shouldn’t be held to it where it was very much the opposite of what they had intended. The court allowed the trust to be rewritten in such a way as to exclude Greg’s children with his new wife.

So it all worked out for Bill and Pat, but not without a major court battle that could have been avoided if they had been clearer about the role of stepchildren.

Same-sex couples should review their estate plans in light of the Supreme Court’s decision striking down part of the federal Defense of Marriage Act.

The Supreme Court said that the federal law, which refused to recognize same-sex marriages with regard to federal taxes and benefits, was unconstitutional.

The law had made estate planning especially difficult for same-sex couples, because they couldn’t take advantage of techniques that were available to other married couples. For instance, under federal law, married couples can make unlimited gifts to each other, and can leave an unlimited amount of property to each other in a will, without incurring gift or estate tax. But the law said this wasn’t true for same-sex couples.

The Supreme Court ruling affects more than a thousand federal laws and regulations, ranging from Social Security to veterans’ benefits to income taxes to immigration.

While the ruling affects tax and estate planning for almost every same-sex couple, exactly how it will apply is complicated. One reason is that same-sex marriage is allowed in only about a quarter of the states, and only a small number of other states legally recognize out-of-state same-sex weddings. So the exact impact of the decision will likely depend on the state in which a couple has, or plans to establish, their legal residence.

Nevertheless, the potential impact is very significant. For instance, in the case before the Supreme Court, a widow in New York (which allows same-sex marriage) will be entitled to a refund of more than $360,000 in estate taxes she had paid as a result of the Defense of Marriage Act.

Another question is what happens if a same-sex spouse passed away before the Supreme Court announced its decision. It seems likely – although it’s not entirely clear – that the spouse’s estate tax return could be amended, potentially resulting in a significant tax refund.

In addition to reviewing their estate planning, same-sex couples should also review their federal income tax returns, since they may be able to amend them and claim a refund.

Widows and widowers who are considering remarriage should be aware that a law recently passed by Congress could make a huge difference in how much of their assets they are able to leave to their heirs after taxes.

In general, anyone who is considering remarriage later in life should talk to an estate planner first in order to avoid possible tax problems. But the new law gives added urgency to this advice.

Typically, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. However, if the person’s bequests (plus large lifetime gifts) to other beneficiaries – such as children – total more than a certain “exemption amount,” then an estate tax must be paid. For 2013, the exemption amount is $5.25 million.

In the past, the general rule was that the exemption amount applied separately to each spouse. So if a husband died first, his estate could use his exemption amount, and when his wife died later, she would have her own exemption amount.

But under the new law, if the first spouse to die doesn’t use all of his or her exemption amount, the difference can be passed along to the other spouse. (This was true in 2011 and 2012 as well, but on a temporary basis. The new law makes this rule permanent.)

Suppose a husband dies and doesn’t use any of his $5.25 million amount (because he leaves everything to his wife). When the wife dies, her exemption amount will be her own $5.25 million plus the $5.25 million that the husband didn’t use. This means that instead of being able to leave $5.25 million tax-free to her heirs, she can leave $10.5 million tax-free – a potential savings of millions of dollars.

How does this affect remarriage? It has a big effect, because if a widow or widower marries a new spouse, and the new spouse dies first, the widow or widower will lose any “leftover” exemption from the first spouse, and will have only the exemption from the second spouse.

So suppose a widow “inherits” a $5.25 million exemption from her first spouse. If she remarries someone who has a $0 exemption, and he dies first, the widow will lose the original $5.25 million exemption. Potentially, her estate will have to pay millions of dollars in taxes that would otherwise have gone to her heirs.

On the other hand, suppose a widow inherits no exemption from her first spouse. If she remarries someone who has a $5.25 million exemption, and he dies first, the widow will inherit the $5.25 million exemption and her estate will potentially save a fortune in taxes.

Either way, this is something that should ideally be planned for before the widow or widower ties the knot.

For example, if a widow inherits a large exemption, and then marries someone with a much smaller exemption, she might want to make significant gifts of assets while she’s still alive, rather than leaving those same assets to her heirs in her will. Making gifts in this way can “use up” the inherited exemption, which would otherwise be lost if her new husband were to die before she did.

In addition to tax and financial planning, widows and widowers might also want to specifically address the issue of inherited exemptions in a prenuptial agreement.

For instance, a spouse can inherit an exemption only if the other spouse’s estate files an estate tax return. So a prenuptial agreement might require the spouses to state in their wills that their executor must file an estate tax return – even if no taxes are owed and a return isn’t legally necessary.