2012—The Last Chance for Effective Estate Planning? (Oregon)

Have you been waiting for Congress to “fix” the federal estate and gift tax law? Well, if Congress enacts President Obama’s budget proposals, the “fix” will be in, but it won’t have been worth the wait because the proposals reduce the estate and gift tax exemptions and limit many effective planning tools. Congress might or might not act on these proposals. If Congress fails to act, even higher tax rates and lower tax exemptions will automatically kick in on Jan. 1, 2013.

What does this mean for you and your family? We recommend that you seriously consider taking advantage of the current federal tax law this year. Here’s why:

There are three possible federal tax scenarios that could affect your estate planning: (1) 2012 law as it currently exists; (2) 2013 law that will become effective Jan. 1, 2013 if Congress does not act, and (3) the President’s proposal to change the 2013 law. Here is a summary:

Tax exemptions and rates:

Estate planning tools and techniques:

 
What can you do about these changes?

1. Act in 2012. Consider making gifts to take advantage of the available federal exemptions.
2. If you’re not ready to give away assets on which you depend, consider establishing a lifetime spousal trust, which will capture all or part of the $5,120,000 exemption today and preserve it even if the federal exemption amount decreases.
3. Consider using a family limited liability company for business interests, real estate or stock and bond investments to capture tax benefits.
4. Consider establishing long-term trusts for spouse, children and grandchildren to capture current high generation-skipping transfer tax exemptions to preserve wealth for future generations and to serve as a “family bank.”
5. Consider establishing a life insurance trust to provide a source for payment of estate tax independent of family business, real estate or investments.
6. Consider creating a qualified personal residence trust to transfer the family home or vacation home to the next generation over time.

Although no one can predict what the law will be in the future, it is quite likely that the federal tax law will not be as favorable or as generous for planning occurring after 2012.

Planning this year can capture current benefits before they disappear. We recommend that you call your advisors soon while there is still time to consider effective planning.