The federal estate tax exemption is set to return to $1 million dollars on January 1, 2013 unless Congress passes new tax legislation. This means that you have about eight months to use your approximately $5 million dollar exemption (during life or at your death.) If you’re married, you and your spouse can jointly transfer about $10 million dollars worth of assets. Wealthy families across the country, who are getting good advice, are making transfers to the next generation now.
Will you lose about half your assets to the federal estate tax? Add up your assets: real estate, business interests, monies owed to you, retirement accounts, life insurance, personal property, investment accounts, and bank accounts. If they will likely exceed the impending $1 million dollar limit, your loved ones could lose about half of the assets that top the exemption unless Congress passes new tax legislation. If you transfer it now, not only do you get the value out of your estate without transfer tax, but you get the value of future growth out of your estate as well.
In addition, this is a perfect time to gift, not only because of the huge exemption, but because assets are devalued now in the current economy. Moreover, a qualified and experienced estate planning attorney can show you how to compress assets to leverage your gifts and use a life insurance trust to leverage the federal estate tax and generation skipping tax.
All significant gifts should be made in trust to provide asset protection. Outright gifts can be seized by creditors such as divorcing spouse, auto accident creditor, bankruptcy creditor, and other lawsuit creditors. Assets you transfer in trust cannot be taken by your child’s or your grandchild’s creditors.
As a bonus, trusts can own 529 Plans for grandchildren. 529 Plans are investment vehicles used to pay for college expenses. The assets grow tax free and are distributed taxes free when used for college expenses.
The next eight months are the perfect time to transfer wealth to the next generation to avoid the federal estate tax. Don’t hesitate because it takes time to get a comprehensive gifting program and estate plan in place and functioning.
The place to start is with a consultation with an experienced and qualified estate planning attorney.