What Can We Expect for the Estate Tax in 2013?

What Can We Expect for the Estate Tax in 2013?

The answer currently is: WHO KNOWS? Another year has passed and the estate tax laws are still up in the air.

The current status of the estate tax, many people find it difficult to find peace of mind when it comes to thinking about transferring their hard earned assets to their loved ones when they are gone. Congress continues to postpone addressing the federal estate tax issue, and clients continue to be wary about making estate planning decisions.

In 2012, an Estate of a United States citizen can give away assets worth approximately $5,000,000 without their estate having to pay any federal estate tax. This amount is called a Federal Estate Tax Exemption. Unfortunately, these exemptions are scheduled to go down to $1,000,000 and the tax rate on Estates over the exemption amount will increase from 35% in 2012 to a 55%. Yes I said 55%!

Now is the time to act!

Regardless of the uncertainty that many people feel as a result of the current federal estate tax condition, if your estate is likely to be worth more than $1,000,000, now is the time to act.
What can be done you ask. Well, first pick up the phone and set up an appointment with my office and then we will discuss the following:

1) For a married couple we can at the very least draft a credit shelter trust (also known as an A-B Trust). An A-B Trust, or a similar trust with similar provisions, allows your Estate, if you are the first spouse to go, to fund the “B” trust with assets equal in value to the available federal estate tax exemption at your death.

All other assets you have will go into the “A” Trust and will be left to your spouse free of estate taxes. Your spouse (called the Surviving Spouse) will live on the “A” portion of the trust while they are alive (and also have access to the “B” trust if the “A” trust is diminished). Upon the Surviving Spouses death (now you are both gone), the “A” trust will then claim the second estate tax exemption and then the trust assets will be disbursed to your heirs or other beneficiaries.

2) What if your Estate is larger than both exemptions? (e.g. - if the exemption is $1,000,000, then with an A-B Trust your combined exemptions would be $2,000,000.) If your estate is larger than $2,000,000 you could set up an Irrevocable Life Insurance Trust (ILIT).

Then, if your ILIT purchases a life insurance policy, the life insurance proceeds will be distributed to the named beneficiary’s of the ILIT estate-tax free upon your death. In the contrary, if you have a life insurance policy outside of an ILIT, the proceeds will be part of your estate and subject to estate tax.

3) You could also give assets away. Currently, in 2012, an individual can give up to approximately $5,000,000 in assets away and avoid gift tax on the gift. However, keep in mind that this will reduce the amount of Estate Tax exemptions available to your Estate because if you gift more than $13,000 to any one individual in a year you have to report the gift and the IRS will then be keeping track of your gifts and will deduct those gifts from your Estate exemption when you are gone.


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