Year-End Planning

Dramatic tax increases scheduled to go into effect in 2013 make 2012 tax planning imperative. If Congress doesn’t take action, the federal estate tax rate will increase from 35 percent to 55 percent and the exclusion amount will drop from $5,120,000 to $1,000,000.

Planning for these likely tax changes is a major undertaking and many clients are beginning the process now rather than waiting for the fall elections. This is prudent because the additional time will allow you to become comfortable with the gifting process and provide time to custom design trusts for your family.

The estate tax exemption is currently $5,120,000 per person and will revert to $1,000,000 on January 1st, 2013 unless Congress acts. The President is suggesting a $3,500,000 exemption. The potential reduction in the estate tax exemption is resulting in many client making large gifts, in trust, for their family. In some instances the trusts are for the spouse, children and grandchildren and in others just for children and younger generations. Most experts would define the savings at 35%, 45% or 55% of the amount gifted over $1,000,000. On a $5,000,000 gift the savings would be $1,800,000 ($4,000,000*45%).

In addition, proposals have been made to restrict or eliminate valuation discounts, grantor retained annuity trusts (GRATs), grantor trusts, GST allocation, and many other tools used to minimize and/or eliminate estate/gift taxes.  These could have a more costly impact on your estate and asset protection planning than the drop in the current $5,120,000 estate and gift tax exemption.  It may be advantageous for you to plan aggressively now before the techniques are restricted or eliminated.

Timing is imperative to implement any planning prior to year-end, so you are encouraged to set an appointment at your earliest convenience to take advantage of this expiring opportunity.  We are prepared to assist you in modeling scenarios to determine which strategies are right for you. Please don’t hesitate to call us to schedule an appointment to begin discussing your options.