"Put not your trust in money, but put your money in trust."
Oliver Wendell Holmes, Sr.


Great Estate Planning Techniques Are Still Available (for Now) (However, there have been many proposals to eliminate significant planning strategies)

Great Estate Planning Techniques Are Still Available (for Now)
(However, there have been many proposals to eliminate significant planning strategies)
At the end of 2012, Congress passed the American Taxpayers Relief Act of 2012 just as the New Year was ringing in. The law, surprisingly, retained the higher gift tax exemption that went into effect on January 1, 2011 (although it increased the top gift and estate tax bracket to 40%). The new law also failed to eliminate any of the existing and best estate planning techniques. However, given the administration’s proclivity to raise taxes, there are no guarantees these techniques may continue to be available in the future.

The following is a summary of the provisions of the new law that relate to estate and gift taxation and a brief summary of important estate planning techniques that are still available:

  1. The estate, gift and generation-skipping transfer tax exemptions are retained and indexed for inflation so that the 2013 exemptions are $5,250,000.
  2. The minimum estate, gift and generation-skipping transfer tax rate is increased from 35% to 40%. The 40% rate is reached at a taxable estate or cumulative lifetime gifts of $1,000,000. The combined federal and state estate tax rate for New York and New Jersey residents approaches 50%. Therefore, sophisticated estate planning for taxable estates above the exemption is extremely important.
  3. Unrelated to the new tax law, the annual exclusion has increased to $14,000 per donee or $28,000 for a married couple who elect to gift split.
  4. Portability of any unused estate tax exemption between spouses is now permanent. This outcome means the unused estate tax exemption of a decedent can be transferred over to a surviving spouse. As a result, all wills and living trusts should be reviewed to make sure the documents are sufficiently flexible to allow for a full deferral of New York or New Jersey estate taxes until the death of the surviving spouse.

The new law removes much of the uncertainty we have been dealing with in the past decade due to the threat of a reversion to pre-2001 tax laws. Those who made significant gifts in 2011 and 2012 have succeeded in removing assets and future appreciation on those assets for multiple generations. For those who did not make substantial gifts last year, there is now more time to assess the advantages of doing so in light of personal goals and objectives.

It is worth noting that no changes were made to the Grantor Retained Annuity Trusts (GRATs) rules, and no limitations were placed on valuation discounts for intra-family transactions or the fantastic benefits of intentionally defective grantor trusts. It is entirely possible that these planning techniques will be revisited at some point in the future when additional tax reform is considered. Also, neither New York State nor New Jersey has a gift tax (though they both have onerous estate taxes). In an effort to raise revenue, those rules could change. It is therefore much less costly to make taxable gifts than to pay estate taxes.

Interest rates remain at all time historical lows. Therefore, it is an opportune time to implement strategies that involve giving away assets with future appreciation potential. For example, the hurdle rate for making a GRAT successful is now only 1%. The minimum interest rates for installment sales to intentionally defective grantor trusts on intra-family loans are only .21% (short term), .87% (mid-term) and 2.31% (long term). These low rates offer a compelling opportunity to transfer future appreciation while maintaining principal assets for the current generation.

All estate plans NEED to be reviewed to determine whether changes to your will should be made and whether additional planning is warranted. We recognize that estate planning only benefits the next generation and beyond and not the planner. However, not only it is important to have one’s affairs in order, most clients prefer that their heirs be the primary beneficiaries of their estate. Without planning, the government is often the primary beneficiary. Trusts are essential to ensure that wealth transfer can be accomplished without transferring control while creating asset protection strategies.

Plan Today, Save Tomorrow

If you are looking for the very best legal advice in estate and succession planning, or estate and trust administration, contact the law firm of Maurice Kassimir & Associates, P.C.

(212) 944-1377

Providing sophisticated estate planning to insure the accumulation, preservation and transfer of wealth for clients in the New York Metro area.

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