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

Have you been waiting for Congress to “fix” the federal estate and gift tax law? Significant reductions in the federal estate and gift tax exemptions are scheduled to occur on Jan. 1, 2013. At the same time, federal estate and gift tax rates are scheduled to increase. With possible tax changes on the way, now is the time to consider effective estate planning options.

What does this mean for you and your family?

Consider taking advantage of the current federal tax law this year.

There are three possible federal tax scenarios that could impact 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) President Obama’s budget proposal to change the 2013 law. Here is a summary:

Tax exemptions and rates:

Estate planning tools and techniques:

 
What estate planning options might you consider?

1. Consider making gifts to take advantage of the available federal exemptions.
2. If you are not ready to give away assets on which you depend, consider establishing a lifetime spousal trust, which can capture all or part of the $5.12 million 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 provide asset protection and 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 hold new or existing life insurance policies and 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 likely that the federal tax law will not be as favorable or as generous for planning occurring after 2012. If you would like to discuss these issues we recommend that you contact your estate planning advisor soon.