Michigan Estate Planning Blog

End-of-Year Estate Planning Preparations Start Now

 

Once summer winds down, estate planning attorneys start thinking about end-of-year to-do lists. There’s a lot to consider, especially this year. A recent article from Forbes asks the question: “2024 Year End Estate Planning: Are You Ready?”

Pre-2026 planning needs to happen sooner than later. When the federal estate exemption is cut in half, it will be too late to act. Estate planning attorneys are recommending that their clients address this before 2024 ends. Your situation may be best served with a Spousal Lifetime Access Trust (SLAT). Avoiding IRS scrutiny by leaving time between various transfers funding accounts if both spouses have SLATs. Not enough time may make a SLAT strategy vulnerable to IRS scrutiny because of the Reciprocal Tax Doctrine—trusts being too similar can be undone. It is best to have this done in 2024.

Regardless of who wins the presidential election, you need to get your estate planning in place. Even if you don’t go forward with big changes to your estate plan, having everything prepared in advance will provide more opportunities. You don’t lose anything by taking steps now to retitle assets to facilitate planning. Grantor trusts are always a good option.

If you wait until after the election, you may find yourself in a long line of last-minute decision-makers. An inexpensive trust can be created with a family trustee and trust protector. If it’s necessary, the jurisdiction can be moved in the future. If gift or transfer documents are properly prepared, you could even sign them as late as December 31, 2024. However, these steps can only occur if everything’s set up in advance.

2024 saw a Supreme Court decision with implications for business owners known as “Connelly.” If a business entity bought insurance on the lives of the owners intended to fund a buy-out if the insureds die, the value of the life insurance must now be included in the value of the business. Pre-Connelly, business owners also used LLCs to purchase life insurance to keep the value of the insurance policy out of the value of the business. This appears to now be subject to the same rules. If you are a business owner, review insurance policy ownership and buyout arrangements to be sure that valuations are correct and address the implications of the Connelly case.

Another Supreme Court Case, “Loper,” overruled how government agencies, like the Treasury and the IRS, may interpret statutes. Unless a law expressly states that the agency should issue guidance on the law, the courts no longer are required to give weight to what the IRS (or other government agency) has decided and can make decisions regarding ambiguous laws independently. This is still being figured out by the courts and attorneys. However, it would be wise to have your estate planning attorney review planning decisions if any might be scrutinized.

Final regulations for the SECURE Act have been issued by the Treasury, applying generally to calendar years beginning on or after January 1, 2025. This involves retirement plan rules, using trusts to hold retirement plan benefits for minors and other related issues. Your estate planning attorney will be able to explain whether any of these regulations impact your own estate plan.

The best way to be sure that your estate plan still achieves your goals is to meet with your estate planning attorney to review your plan. It may be fine. However, it’s best to find out if any changes need to be made before time runs out.

Reference: Forbes (September 10, 2024) “2024 Year End Estate Planning: Are You Ready?”

Top Estate Planning Mistakes Can Easily Be Avoided

The music icon Prince was far from the only celebrity failing to have a will, the most significant estate planning mistake of all. Tobacco heiress Dorothy Duke named her butler the executor of a $1.3 billion estate, and her family spent millions on legal costs before the estate was settled. You don’t have to be wealthy to make an expensive estate blunder, says a recent article from Microsoft Start Money, “Seven Estate Planning Mistakes You Can’t Afford To Make.” Regular people also make costly mistakes. However, they can easily be avoided by following these steps.

Procrastinating until the “right” time. Making decisions when you’re under a time constraint because of an unexpected event is a bad time to do estate planning. Leaving a mess for your children to figure out will almost always end badly. Fighting among family members, assets lost to cost battles and unnecessary stress are just a few of the headaches. It’s not how you want to be remembered.

Not updating your estate plan. Wills are like pets—they require ongoing care. If a new child is born and your will isn’t updated, you’ve effectively disinherited the child. If you remarry and don’t update your estate plan or beneficiary designations, your new spouse will have little recourse to what you might have left them. The same goes for major changes in your financial life, up or down.

Putting your head in the sand about taxes. In the last 15 years, there have been many tax changes. Failing to address tax changes with estate planning in mind can lead to financial disasters. Remember, you may not be near the federal estate tax threshold. However, if your state levies estate taxes, you’ll need to plan for them.

If the lifetime estate and gift tax exemption reverts to pre-2017 tax law levels, “average” wealthy people with estates worth around $6.46 million will pay federal estate taxes. If this is your situation, start talking with your estate planning attorney now to address this change.

Ignoring incapacity. We’re not sure which is harder to consider, incapacity or death. Neither is pleasant to consider; one is likely, and another is certain. Having the right plan in place means having the power of attorney, health care directives, HIPAA release forms, do not resuscitate, living wills and other documents specific to your state are all part of estate planning.

Forgetting to plan for non-cash assets. If you own a home, what do you want to have happen to the home upon your death? If you become incapacitated, who will take care of your home, your pets and any property requiring upkeep? Classic cars, antiques and art collections must be disposed of in a planned manner.

Neglecting digital assets. More and more of our lives are now conducted online. Bank accounts, social media, photos, online businesses and cryptocurrencies are not included in household assets by your will. You’ll need to provide a tech-savvy person with information on your accounts, create an inventory and direct the person to serve as your digital executor.

Trying to do it yourself. Creating an estate plan without the help of an experienced estate planning attorney is asking for trouble. Here’s just one example: a family thought it was a good idea to retitle the house to Joint Tenancy with Right of Survivorship for the parent and an adult child. They didn’t know about the child’s serious debt situation. The child now had an asset, and creditors moved swiftly to put a lien on the house. The family eventually lost the house to the creditors.

Reference: Microsoft Start Money (June 23, 2024) “Seven Estate Planning Mistakes You Can’t Afford To Make”

What are the Federal and Gift Tax Exemptions for 2024?

 

Unless Congress acts, regulations that elevated exemptions will expire at the end of 2025, and the exemption will be cut by about half, says the article “Take Advantage Of Increased Gift And Estate Tax Exclusions in 2024” from mondaq.

Those whom the gift and estate tax may impact should speak with their estate planning attorney about using this historically high exemption. Many estate planning strategies can be used to transfer wealth and take advantage of these exemptions efficiently.

In November 2023, the IRS announced increases for gift and estate tax exemptions in 2024, including an increase in the federal gift, estate, and GST (Generation Skipping Tax) exemption and the annual exclusion from gift tax. These changes became effective on January 1, 2024.

The gift and estate tax exemption has increased to $13,610,000 per individual in 2024. Married couples can transfer up to $27,220,000 since both partners may utilize the exemption. This marks a substantial increase of $690,000 per person ($1,380,000 per married couple) from the prior year.

Generally, gift and estate taxes may be due if a person’s total wealth transfer during their lifetime and at their death exceeds the gift and estate tax exemption.

The GST tax exemption increased to $13,610,000 per person in 2024. This tax may be triggered by transfers to or in trust for family members more than one generation younger than the donor. It might also be triggered by gifts to unrelated individuals who are 37.5 years younger than the donor.

The annual gift tax exclusion increased to $18,000 per donor, per gift recipient, and $36,000 per married couple splitting gifts. The annual gift tax exclusion permits individuals to make gifts to any amount of people tax-free every year without being counted against their lifetime gift and estate tax exemption.

An experienced estate planning attorney will explain the time-sensitive opportunities presented by the increases in 2024 in conjunction with the current (yet temporary) exemptions.

Now is the time to consider funding trusts with assets expected to have high growth potential, using a portion of the gift tax exemption while removing future appreciation from the estate.

Reference: mondaq (Dec. 21, 2023) “Take Advantage Of Increased Gift And Estate Tax Exclusions in 2024”

What’s the Best Way to Manage an Inheritance?

 

Inheriting wealth comes with its own set of challenges and emotions, whether it’s a modest amount or a significant amount. A recent article from Kiplinger, “Three Essential Strategies for Managing Your Inheritance,” explains three key considerations to help manage an inheritance responsibly.

Understanding tax implications. Taxes take a bite out of inherited wealth and require the help of an experienced estate planning attorney to guide you through the maze of taxes. The type of assets inherited, and the laws of your state will affect tax liabilities. For the most part, life insurance proceeds are tax-free. However, inherited retirement accounts, including traditional IRAs or 401(k)s, are not.

When the asset inherited is real property, there may be a benefit from a step-up in basis, which can minimize capital gains taxes if the decision is made to sell the property.

Federal estate tax exemptions are still extremely high. However, there may be state estate taxes or inheritance taxes to consider.

Confusion about taxes often occurs because the rules differ for diverse asset types. Inherited IRAs, for instance, may be taxed heavily if the withdrawals are not appropriately managed. Understanding the rules makes all the difference.

Investing? Act wisely. Sudden wealth often causes people to act irresponsibly. It’s tempting to take a risk with investments. However, wealth can evaporate very quickly if not managed with care and prudence. Before making any big financial decisions, evaluate your overall financial picture. Wealth may be best used to pay off debt, invest and save for the future.

If you don’t have an emergency fund, this is the time to establish one, enhance retirement savings and rid yourself of any debt. You’ll want to chart a course to balance growth with wealth preservation.

Make a long-term plan for the future. A large inheritance can substantially impact your life goals and retirement plans. It’s an excellent opportunity to reassess your finances and consider making adjustments. Is early retirement your goal? Are there charitable causes you’d like to support? If you have or plan to have children, could your inheritance be used for their college education?

An inheritance is also a time to ensure that your estate plan is in place. This includes trusts, wills and health care directives to manage and protect your wealth. An inheritance of any size requires estate planning to protect yourself and your family.

Estate planning goes beyond having a will. It’s about ensuring assets are distributed according to your wishes. Trusts are excellent tools for managing wealth and allow for control over how assets are used by future generations, in addition to providing tax benefits and creditor protection.

If you’re navigating an inheritance, take time to plan before you act. You’ll want to make wise choices to honor the legacy behind the inheritance while creating your own legacy.

Reference: Kiplinger (Dec. 8, 2023) “Three Essential Strategies for Managing Your Inheritance”

 

Should You Gift Kids Inheritance Now, or After You’ve Passed?

 

This is a genuine dilemma facing millions of parents and grandparents as they prepare to pass an enormous amount of wealth—$73 trillion—to the next generation. There are pros and cons to both approaches, according to the article, “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind,” from Barron’s.

Giving too much too early could put parents in an economic bind in their later years. Therefore, this needs to be considered in light of today’s longer life spans. However, if you can afford to make a generous gift and your children could use the money now for a good purpose, it’s hard to justify making them wait.

How much to give is as critical as when to make the gift. The predominant concern is if you give your children too much, they won’t be motivated to earn their own wealth, or other family members will resent the gift. Estate planning attorneys and financial advisors routinely speak with families about these issues. These conversations always consider the values they want to instill in their children.

In some cases, parental support can help a child while working at an entry-level (i.e., low paying) job in their dream career. Covering the cost of rent for a few years can offer young adults a support net until they achieve financial stability.

This is very different than paying the expenses of a young adult with no career goal whose primary focus is a robust social life.

Anyone can make a yearly gift to any other person of up to $17,000 tax-free, or $34,000 per couple, but there are ways to make gifts without triggering gift taxes. Direct tuition payments to schools are tax-free. Unlike putting money into a 529 account, there is no limit to how much can be paid directly to a college or university. Parents and grandparents could also help with a downpayment on a child’s home without paying gift taxes.

Gifts don’t have to be large to have an impact. Some parents and grandparents give their children or grandchildren a small amount to start saving for retirement. A gift of a few thousand dollars during their 20s can grow into a nice sum over many decades. If the recipient has earned income, you can contribute to their IRA or Roth IRA accounts.

If assets are limited, consider giving personal possessions, such as jewelry or family heirlooms, to younger generations. You’ll get to see them enjoy their gifts, without putting your own financial situation at risk.

Whenever the decision is made to make these gifts, families should talk about their values and intentions around money.

If there are concerns about children losing an incentive to work because of the family’s wealth, a spendthrift trust might pass wealth along while controlling its distribution.

Remember that today’s generous federal estate tax rules are set to expire in 2026. Currently, individuals can gift up to about $13 million ($26 million for couples) tax-free in their estate plans. If the exemptions expire, this amount will be cut by approximately half.

Reference: Barron’s (Nov. 4, 2023) “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind”

Why Would I Need a Will or a Trust?

 

Say that some time ago-- when your family was still young, and the estate tax limit was $600,000—you created a revocable and an irrevocable life insurance trust (ILIT). This was designed to take care of your family after your death. However, at this point, everyone is financially independent, and the value of your estate is far less than the taxable threshold of $11.7 million.
If the trust is terminated, the beneficiaries will get a step-up basis at your death and pay taxes at their own rates, rather than the trust rate. Would you need a will, if all the accounts have your children as beneficiaries? The ILIT was also funded with a term life insurance policy that is going to expire soon.
Nj.com’s recent article entitled “Should I terminate this trust and do I need a will?” says that there are number of issues to address. The purpose of an irrevocable life insurance trust (ILIT) is to own and control term or permanent life insurance policies, so that the policy proceeds aren’t included in the insured’s taxable estate upon his or her death.
While the current federal estate tax exemption amount is $11.7 million per person, the law is scheduled to expire at the end of 2025, when it will return to an exemption of $5 million, adjusted for inflation. It’s unknown if Congress will change the proposed exemption amount when the law sunsets.
If the ILIT is funded with a term policy that is set to expire soon, it may be easier to let the policy owned by the ILIT expire, which would render the ILIT immaterial. The terms of the ILIT will govern the procedure for the termination of the trust, which may be simple or onerous. Consult with an experienced estate planning attorney to who can look more closely at the trust’s language.
A revocable living trust lets the person creating the trust control the assets in the trust and avoid probate. It also can be used to manage the trust assets by a successor trustee, in the event the grantor who created the trust becomes incapacitated.
For example, New Jersey banks may freeze 50% of the assets in an estate at the owner’s death to be certain that any estate or inheritance taxes that may be due are paid. A tax waiver must be obtained to lift the freeze. However, any assets in a trust, aren’t subject to a similar freeze.
At the grantor’s death, a trustee must pay income tax, if the gross income of the trust is $600 or more. Depending on the amount of assets in the trust, the trust may not accumulate gross income of $600, if the assets are distributed outright to the beneficiaries right after the death of the grantor.
Lastly, it’s wise to have a will, even if the majority of assets are in a living trust or are in IRAs and other retirement accounts. That is because there may be some assets that are outside the trust or retirement account or there may be a need for a personal representative of the estate to handle tax or other types of refunds.
Reference: nj.com (June 15, 2021) “Should I terminate this trust and do I need a will?”

Watch Out for “State” Estate Taxes Saginaw, Michigan

Budgets are set to battle once more on Capitol Hill in the near future. All considered, estate planners are fairly content with the last battle and the federal estate tax laws that went into effect with the American Taxpayer Relief Act (ATRA) at the beginning of the year. Consequently, most taxpayers have been spared the federal estate tax. But don’t forget about what your state has in store for you. As a recent Kiplinger article warns, the state level transfer taxes have not fallen away like the federal transfer tax. The article, titled “Beware States With Their Own Estate Taxes,” notes that fully 21 states (plus the District of Columbia) currently impose some kind of transfer tax, whether a death tax, an inheritance tax, or both simultaneously. Furthermore, if you pay too much attention to the federal tax, then you might think you are home free in terms of exempt amounts. Unfortunately, state taxes are, generally, set with much lower exemption amounts. The Federal tax has been permanently set at a rather generous range with a $5.25 million exemption amount. On the other hand, New York starts taking a piece of the estate pie at $1 million. If you live in a death tax state, now is the time to be planning to avoid or minimize the impact. For that matter, too, where do you plan your retirement? Crossing into a new state for retirement or late-in-life care is not just about passing the “Welcome” sign on the highway. Accordingly, remember to consider how your move will affect your assets and overall estate plan. Then again, how much do you trust Congress and their idea of a “permanent” estate tax law? Already these new budget battles have given platform to new calls for a change in the “permanent” federal estate tax exemption. In fact, the Obama Budget Proposal would reduce the just-agreed-upon “permanent” exemption from $5.25 million to $3.5 million (The Washington Times here).

Reference: Kiplinger
(May 2013 issue) “Beware States With Their Own Estate Taxes”

For more information, see www.jerryreiflawyer.com

 

The Beauty and the Beast of the Estate Tax Rules Saginaw, Michigan

We certainly have been through some uncertain times regarding estate taxes over the past several years. From changing exemption amounts, to a one-year repeal, to “band-aid” fixes, the only thing certain about the federal estate tax was its uncertainty. Until now. Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time. Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption. Forbes goes on to list five powerful strategies for reducing federal estate taxes: Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free. Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount. Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.” Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death. Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.” The beauty of the new estate tax rules is their permanence. The beast is their sting -- 40 percent on the first dollar over the exemption amount (currently $5.25 million). Failure to wisely plan for a potential estate tax liability can be disastrous for your family and/or your business.

Reference: Forbes (January 30, 2013) “Want to Avoid the Estate Tax Cliff? Five Ways to Help”

For more information, see www.jerryreiflawyer.com

 

The Beauty and the Beast of the Estate Tax Rules Saginaw, Michigan

We certainly have been through some uncertain times regarding estate taxes over the past several years. From changing exemption amounts, to a one-year repeal, to “band-aid” fixes, the only thing certain about the federal estate tax was its uncertainty. Until now. Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time. Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption. Forbes goes on to list five powerful strategies for reducing federal estate taxes: Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free. Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount. Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.” Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death. Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.” The beauty of the new estate tax rules is their permanence. The beast is their sting -- 40 percent on the first dollar over the exemption amount (currently $5.25 million). Failure to wisely plan for a potential estate tax liability can be disastrous for your family and/or your business.

Reference: Forbes (January 30, 2013)
“Want to Avoid the Estate Tax Cliff? Five Ways to
Help”

For more information, see www.jerryreiflawyer.com

 

Federal Estate and Gift Taxes Finally Settled with Fiscal Cliff Deal Saginaw, Michigan

Unless you’ve been living under a rock, you’re probably aware that Congress last week passed a tax deal avoiding what the media had termed “the fiscal cliff.” You may not be aware, however, of how The American Taxpayer Relief Act impacts your estate, business and retirement planning. This week I’ll focus on those key aspects of the Act, starting with a summary of key provisions affecting federal estate and gift taxes. Perhaps one of the most important aspects of these new provisions is that they are permanent (as “permanent” as anything in Congress can be, anyway). By “permanent,” I mean that there is no scheduled “sunset” or repeal. For the first time in more than a decade, we now have a set of laws around which we can make reasonable estate and gift tax plans. Deborah Jacobs of Forbes wrote a succinct summary in the article, “After The Fiscal Cliff Deal: Estate And Gift Tax Explained.” You may want to click over to read it, but here are the highlights: • The Basic Exclusion Amount is set at $5.12 million per person in 2012, to be adjusted annually for inflation. In plain English, this means that a single person may transfer up to $5.12 million in estate value to their heirs federal estate tax-free. • There is an unlimited marital deduction, which means spouses can pass unlimited estate value from one to another without federal estate taxation. • Your basic exclusion amount also is “portable” to your spouse, which means that a surviving spouse can apply both spouses’ basic exclusion amount to protect up to $10.24 million in estate value from federal estate taxation. As Jacobs notes in her article, however: “Still, portability is not automatic. The executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor, who can then use it to make lifetime gifts or pass assets through his or her estate. The prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed.” • Lifetime gifts are subject to the same $5.12 million basic exclusion amount, as part of your unified credit (one credit of $5.12 million for estate transfer and gifts made during your lifetime). Again, spouses may utilize both their mutual basic exclusion amounts to make lifetime gifts (called gift-splitting). Remember that lifetime gifts will reduce the exclusion amount available to the final estate. • The annual exclusion ($14,000 per person) allows you to make lifetime gifts that don’t count against your estate and gift tax basic exclusion. Married couples can combine their annual exclusion amounts to make gifts of up to $28,000 per person per year. For example, a married couple with two adult children could gift each child $28,000 per year, for a total of $56,000 – without utilizing their lifetime estate and gift tax basic exclusion. Should you review your estate plan in light of these changes? Perhaps, especially if it has been more than two years since you last reviewed your plan with your estate attorney; or if you have experienced significant life changes such as marriage or remarriage, the serious illness of a spouse or other family member, the birth or adoption of a child or grandchild, acquisition of property in another state, or a significant change in your finances such as receiving an inheritance or selling a business. If any of these situations apply to you, or if you have questions about how the new laws might change your estate planning, call the office and ask to schedule an estate plan review consultation.

Reference: Forbes (January 2, 2013) “After The Fiscal Cliff Deal: Estate And Gift Tax Explained.

Federal Estate and Gift Taxes Finally Settled with Fiscal Cliff Deal Saginaw, Michigan

Unless you’ve been living under a rock, you’re probably aware that Congress last week passed a tax deal avoiding what the media had termed “the fiscal cliff.” You may not be aware, however, of how The American Taxpayer Relief Act impacts your estate, business and retirement planning. This week I’ll focus on those key aspects of the Act, starting with a summary of key provisions affecting federal estate and gift taxes. Perhaps one of the most important aspects of these new provisions is that they are permanent (as “permanent” as anything in Congress can be, anyway). By “permanent,” I mean that there is no scheduled “sunset” or repeal. For the first time in more than a decade, we now have a set of laws around which we can make reasonable estate and gift tax plans. Deborah Jacobs of Forbes wrote a succinct summary in the article, “After The Fiscal Cliff Deal: Estate And Gift Tax Explained.” You may want to click over to read it, but here are the highlights: • The Basic Exclusion Amount is set at $5.12 million per person in 2012, to be adjusted annually for inflation. In plain English, this means that a single person may transfer up to $5.12 million in estate value to their heirs federal estate tax-free. • There is an unlimited marital deduction, which means spouses can pass unlimited estate value from one to another without federal estate taxation. • Your basic exclusion amount also is “portable” to your spouse, which means that a surviving spouse can apply both spouses’ basic exclusion amount to protect up to $10.24 million in estate value from federal estate taxation. As Jacobs notes in her article, however: “Still, portability is not automatic. The executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor, who can then use it to make lifetime gifts or pass assets through his or her estate. The prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed.” • Lifetime gifts are subject to the same $5.12 million basic exclusion amount, as part of your unified credit (one credit of $5.12 million for estate transfer and gifts made during your lifetime). Again, spouses may utilize both their mutual basic exclusion amounts to make lifetime gifts (called gift-splitting). Remember that lifetime gifts will reduce the exclusion amount available to the final estate. • The annual exclusion ($14,000 per person) allows you to make lifetime gifts that don’t count against your estate and gift tax basic exclusion. Married couples can combine their annual exclusion amounts to make gifts of up to $28,000 per person per year. For example, a married couple with two adult children could gift each child $28,000 per year, for a total of $56,000 – without utilizing their lifetime estate and gift tax basic exclusion. Should you review your estate plan in light of these changes? Perhaps, especially if it has been more than two years since you last reviewed your plan with your estate attorney; or if you have experienced significant life changes such as marriage or remarriage, the serious illness of a spouse or other family member, the birth or adoption of a child or grandchild, acquisition of property in another state, or a significant change in your finances such as receiving an inheritance or selling a business. If any of these situations apply to you, or if you have questions about how the new laws might change your estate planning, call the office and ask to schedule an estate plan review consultation.

Reference: Forbes (January 2, 2013) “After The Fiscal Cliff Deal: Estate And Gift Tax Explained.”

For more information, go to www.jerryreiflawyer.com