Estate Planning

Estate planning is a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. These estate planning professionals develop strategies to help you achieve your goals, including  avoiding or reducing the amount of gift and estate taxes paid. 

The first basic concept in estate and gift regulations is the annual exclusion.  This is the amount of money a person can give annually without affecting the unified credit. 

The annual exclusion allows a person to make gifts to as many different people in a year as he likes with no tax consequences.  In 2008, each person can gift up to $12,000 per year to a single person.  This allows a husband and wife to gift anyone $24,000 without tax consequences.  The annual gift tax exclusion amount is indexed to inflation, so it is difficult to predict how the value will change in the future.

The second basic concept of estate and gift rules is the unified credit.  The term “unified credit” is used because the credit is the “unified gift/estate tax credit.”  This is a tax credit, not a gift or transfer limit.  The current gift tax credit basically allows a person to gift $1 million over a lifetime without incurring gift tax.  The current estate tax credit allows an estate to reach $2 million without incurring estate tax.   

The Economic Growth and Tax Relief Reconciliation Act of 2001 made dramatic changes to estate tax laws.  The estate tax exclusion numbers for the next few years are as follows:  $2 million for 2008, then $3.5 million in 2009, and in 2010, the estate tax is gone.  But in 2011 the estate tax comes back with a lifetime exclusion of $1 million.  No one knows what changes Congress has in store for estate tax laws, but current law would leave the lifetime exclusion stuck at $1 million after 2011. 

I begin with these basic tenets to say that if your net worth approximates $1 million, then there are many strategies I can use to reduce the amount of estate tax that your estate pays.  There are so many strategies available there is no way to list them all here.  Some options include:

Gifts

Gifts can include anything:  Cash, stock, real property, or shares in a family partnership owning any of the above.  Shares in a partnership can be discounted because of a lack of marketability and lack of control and gifted at that discounted rate within the annual exclusion.

Trusts

The first spouse to die can fund a trust with his or her full estate tax exclusion for the benefit of the surviving spouse.  The trust could pay earnings to the surviving spouse, and any portion of the trust could be used to provide for the surviving spouse’s health and support.  The remainder of the estate would pass to the surviving spouse without tax consequences because of the rule that permits an unlimited amount of property to pass to a spouse free of federal estate tax.  Upon the death of the surviving spouse, the balance of the trust would be paid to the children.  This simple step allows both spouses to make full use of the estate tax credits saving hundreds of thousands of dollars in estate tax.

Certainly estate planning can benefit those with sizable estates, but all individuals need a will to ensure their objectives are known. It is also may be important to establish a trust for the benefit of your surviving minor children.

A person often has other priorities when seeking estate planning advice.  You may need to establish a trust to care for a disabled child after your death.  Some people find it necessary to skip a generation when distributing assets.

Each estate plan is unique and must be drafted to prioritize your individual goals.  At your conference, we will review your objectives and assets and devise a plan to address your needs.