The Need for Advanced Estate Tax Planning

Often, a client (or more likely, a prospective client) will say something like:

“Oh, I don’t need estate planning, I already have a living trust.”

Our response is always the same:

“While a living trust is the foundation of your estate plan, it is far from the end of the Estate Planning process. In fact, it is more accurately described as the beginning of the Estate Planning process.”

In this section, we will address primarily the planning issues that surround the Federal Estate Tax, as well as some advanced estate planning strategies that can help bring your estate under the applicable estate tax threshold.

Is the Estate Tax Dead?

Many people made the mistake of thinking that the Estate Tax is something they don’t need to worry about, ever since Congress extended the Bush Tax Cuts at the end of 2010.

However, we have been telling all of our clients (and anyone who will listen, really), that these changes in the law are Temporary!

For the years 2011 and 2012 only, the Unified Credit against the Federal Estate Tax rises to $5,000,000 per individual and $10,000,000 per couple.  Above that threshold, the Estate Tax rate was reduced to thirty-five (35%) percent.

Piece of cake, right?  No worries.

Except this:

Unless Congress takes action before the end of 2012 – a Presidential election year, we might add – these rates will expire, and we go back to the rules from 2001.

This means that – unless Congress takes further action – the maximum estate size that will escape Federal Estate taxation after 2013 is $2 million for a couple, and $1 million per individual!  Also returning is the Federal Estate Tax rate of fifty (50%) percent, with a surcharge on Estates over $10 million.

This means that, unless you have a Magic 8-Ball that will tell you of the exact date of your passing, you will need to plan your Estate for the likelihood that the Estate Tax will be in effect.

Advanced Estate Planning Strategies

Assuming that the Estate Tax is in effect in the year of your passing, what are some planning methods that you can implement today that will reduce the likelihood that your estate will be subject to the Estate Tax?

Important Note

It is important to understand that each of the strategies discussed below has advantages and disadvantages. Their impact on a client’s estate may vary widely, due to the individual and unique nature of each estate. Accordingly, it is impossible to specify in advance which is the correct technique for you.

We invite you to meet with one of our attorneys to discuss your Estate Planning needs in greater detail.

Please click on a link below to learn more about Family Limited Partnerships and Irrevocable Life Insurance Trusts.