3 things we do know about estate panning right now
We may not know a number of things about estate planning right now. For example, as of this writing, we don’t know whether changes scheduled for Jan. 1, 2013, will actually go into effect. The top gift and estate tax rate of 35% is set to increase to 55%, and the $5.12 million gift and estate tax exemptions are set to drop to $1 million — but Congress might extend current levels or make other changes. We do know a few things, however, and here are three of them:
Gifting is good
If you’ve been meaning to make some tax-friendly gifts, now may be the ideal time so you can be sure to take advantage of the high exemption while it’s available. Doing so will also remove future appreciation on those assets from your taxable estate. If you’ve already used up your exemption, you may even want to consider leveraging the low 35% gift tax rate by making taxable gifts in excess of your exemption. The gifts will lower the amount that may be subject to tax, quite possibly at a higher rate, when you die. Just discuss the risks vs. rewards with your financial advisor before making
Trusts still matter
Trusts have always provided some refuge from estate planning uncertainties — and this is still true. For example, as of this writing, another break set to expire under estate tax law is exemption “portability.” That is, when one spouse dies, his or her estate may elect to allow the surviving spouse to use the deceased spouse’s unused exemption amount. Establishing a credit shelter trust can preserve both spouses’ exemptions whether or not portability is available. What’s more, such a trust can save future appreciation from estate tax and defend assets from creditors. Of course, a credit shelter trust (or any trust, for that matter) is a sophisticated vehicle, so you’ll need professional assistance setting one up.
Disclaimers can help
Incorporating changes into your estate plan that will provide flexibility after your death is a good idea when tax laws are uncertain. One such change is to carefully select contingent beneficiaries so your primary beneficiaries can, if appropriate, make qualified disclaimers that will help achieve your goals. Such disclaimers enable the beneficiary to reject inherited assets so they pass to the contingent beneficiary, potentially allowing for more tax-efficient asset transfers.
Many requirements do apply; improper execution of this strategy could trigger negative tax consequences or other undesirable results. So, again, it’s important to get your financial advisor involved.
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