The changes in the Estate and Gift Tax laws over the last decade have altered the landscape of Estate Planning.
Clients who have implemented tax planning as part of their Estate Plan prior to the 2012 American Taxpayer Relief Act (ATRA) should revisit their Estate Plans to ensure that the plan in place accurately reflects their intentions and needs.
Individuals and Married Couples Worth Less than $5 Million:
Spouses with a total net worth that is less than $5 million are currently under the threshold which triggers an Estate Tax (assuming no taxable gifts were made) and the Estate Tax driven aspects of their Estate Plan may no longer be necessary.
Many of the planning ideas which were intended to lessen the Estate Tax such as the creation of a Family Limited Partnership, the creation and funding of a Credit Shelter Trust / Family Trust (see below) or the creation of a GST Trust (see below) may no longer be necessary for tax purposes.
Also, liquidity planning to ensure that the client’s Estate has sufficient liquidity to pay Estate Taxes upon the client’s death (i.e. second to die life insurance policies) may no longer be required.
Married Couples Worth More than $5 Million:
For married couples whose net worth is more than $5 Million, portability has provided them with flexibility in structuring their Estate Plan that was not available before ATRA.
Namely, the first spouse to die can leave their assets outright to the surviving spouse (rather than to a Credit Shelter Trust for the surviving spouse’s benefit) without wasting the first spouse’s Exemption.
Further, the division of assets between spouses that may have been recommended prior to ATRA may no longer be necessary.
Individuals Worth More than $5 Million and Married Couples Worth More than $10 Million:
Single individuals whose net worth is more than $5 million and married couples with a combined net worth of more than $10 million have Estate and Gift Tax issues that cannot be addressed by merely utilizing their Exemption(s) to shelter assets from transfer taxes.
While ATRA has provided additional flexibility in achieving certain tax objectives (see previous Paragraph), tax planning will still be a priority for people in this category as the top Estate and Gift Tax Rates have been increased from thirty-five percent (35%) to forty percent (40%).
Additional tax planning ideas can include formulating a gift giving program, creating Family Limited Partnerships, creating and funding a Personal Residence Trust, creating and funding a Grantor Retained Annuity Trust, entering into a sale to a Defective Grantor Trust, creating Private Annuities, creating and funding a Life Insurance Trust, creating a Charitable Trust or Private Foundation, etc.