Estate Planning

New $5,250,000 Estate Tax Free Exemption


Now that the cloud of uncertainty over estate and gift taxes has finally cleared, individuals and couples can get down to some serious planning. On January 1, 2013, Congress passed the American Taxpayer Relief Act ("ATRA") and President Obama signed it into law on January 2, 2013.  ATRA makes permanent changes to the laws governing federal estate taxes, gift taxes, and generation skipping transfer taxes. The basic federal estate-tax exclusion amount for estates of people who die in 2013 is $5,250,000, the Internal Revenue Service announced recently, up from $5,120,000 in 2012. The federal estate-tax exclusion now is set permanently at $5 million and is indexed for inflation.  But because of inflation, the amount for 2013 works out to $5,250,000. 


Under the new law, portability became permanent. Portability effectively makes the federal estate-tax exclusion amount "portable" between a husband and wife.  When one spouse dies, the other typically can get the deceased spouse's unused exemption amount without having to set up trusts or other tax-saving maneuvers. The exemption amount will continue to be indexed for inflation each year.  There is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies.  This marital deduction, as it is called, applies only if the inheriting spouse is a U.S. citizen. Portability applies only to a surviving spouse. Unused federal estate tax exclusions cannot be transferred to anyone but a surviving spouse. 


Here’s how it works: If the first spouse to die doesn’t use up his or her individual gift/estate tax exemption, the surviving spouse can use what’s left. That gives the couple a total $10.5 million exemption, which they can share in the way that provides the greatest tax benefit.  For example, if each member of a couple has $3 million in assets, and the first one to die leaves everything to the other, no estate tax is owed because property left to a spouse is tax-free.  When the survivor dies and leaves $6 million ($3 million plus the $3 million inherited from the other spouse) to their children, no estate tax will be due, even though the estate is over the exemption amount, because the estate can use $500,000 of the first spouse’s unused exemption. To take advantage of the portability rule, an estate tax return must be filed when the first spouse dies--even if no tax will be due. On very large estates subject to the tax, the gift/estate rate is now 40%.  This is an increase over the 2012 rate of 35%, but the rate remains lower than those that have been in effect since the 1930s. This rate also applies to the generation-skipping transfer tax.  That is a federal tax that is imposed on large transfers that skip a generation (for example, a gift from a grandparent to a grandchild) in an attempt to avoid estate tax. 


The American Taxpayer Relief Act made the exemption permanent at the 2011 level, indexed for inflation, and set the tax for anything exceeding that amount at 40 percent. It also kept the exemptions and taxes the same for gifts made in a person’s lifetime. Singer Michael Jackson’s will is being probated. He had a living trust, but he didn’t put any of his assets in it. Maybe your estate is less than $10 million and you’re not going to pay federal estate taxes, but if you don’t put it in a living trust, it’s public and everyone can see what you have. Unlike legislation enacted in the last several years, there is no sunset provision for these amounts; indexed for inflation, they will stay in force until Congress changes them again. The new estate tax amounts have been called permanent, but tax planners fear elected officials could change them at some point. Of course, a future Congress could pass new estate and gift tax laws, which could change the exclusion amounts, tax rates, or both.  But that would require a proactive move on their part, in contrast to the fiscal cliff, which would have triggered changes automatically. If the estate tax exemption were to be reduced in the future, the portability of the leftover exemption might be lost.


Portability is not automatic. The executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor, who can then use it to make lifetime gifts or pass assets through his or her estate.  The prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed. Let’s hope that the Internal Revenue Service develops a short form for the purpose. This return is due nine months after death with a six-month extension allowed. If the executor doesn’t file the return or misses the deadline, the spouse loses the right to portability. 


As estate tax exemptions remain high, taxes can be less of a concern while control becomes a more important estate planning objective. Clients may still look to traditional estate planning strategies, such as revocable trusts that contain family trust language, to direct when and how their heirs receive assets from the trust. The assets in this trust, no matter their amount, are outside of the surviving spouse’s estate for estate tax purposes.  This means that this trust can appreciate in value to any size, and will not be subject to federal estate taxes when the surviving spouse dies.


Annual exclusion gifting. The annual exclusion increased from $13,000 in 2012 to $14,000 in 2013. This means that you can gift $14,000 per individual, or $28,000 for a married couple, to as many individuals as you would like, without eating into your lifetime exemption.


Front-loading 529 college savings plan accounts. These accounts can be especially useful because you can front-load them with five years' worth of annual exclusion gifts at one time, without incurring any taxable gift. You effectively remove these funds from your estate, the earnings in the accounts grow tax deferred, and, as long as distributions are used for qualified higher education expenses, distributions are federal income tax free.


Direct payments of educational or medical costs. Direct tuition payments to a loved one’s school are not treated as taxable gifts and, therefore, do not count against your annual or lifetime gift tax exemption. Similarly, direct payments to a loved one’s medical care provider are not treated as taxable gifts.


Dynasty Estate Plans

A properly designed Dynasty Estate Plan will:

  • Protect Assets from any future Divorces, Lawsuits, Creditor Claims, Bankruptcy and the IRS
  • Protect the Assets you leave to your Children from ever going to your Son-in-Law or Daughter-In-Law instead of your Grandchildren
  • Keep Assets in your Family Bloodline
  • Minimize Income Taxes
  • Minimize or Eliminate Estate Taxes
  • Minimize or Eliminate Generation Skipping Taxes (no 2nd tax on assets to grandkids)
  • Protect Your Children from and future alcohol, drugs or gambling problems by withholding money from them until they clean up their act
  • Avoid the Delays and High Costs of Probate
  • Create a Legacy for you to Pass On to Future Generations

Other Core Legal Documents You Must Have:

  • Durable Power of Attorney for financial matters in case you become Disabled
  • Health Care Surrogate in case you need Emergency Medical Decisions
  • Living Will for your “pull the plug” wishes

Asset Protection

Asset protection planning is a process by which one organizes their financial affairs in such a manner as to safeguard assets from the risk of exposure. The process of asset protection involves transferring the assets from an unprotected form of ownership to a protected form of ownership. The unprotected form generally applies to property held directly in an individual’s name of even the name of a revocable living trust. The protected form can be one of many asset protection vehicles such as limited partnership, corporations, certain kinds of trusts, limited liability companies and other such entities. Protecting assets can also be a process of transferring them into exempt assets to the extent permitted by the individual states.

Due to the lottery style court cases and judgments that exist today, a well drafted asset protection plan can go a long way in deterring a creditor. If you can avoid the appearance of being the “deep pocket” then you can frequently be passed over and the creditor will look to someone else. In fact deterrence is a major part of asset protection. The plaintiff is generally unwilling to mount countless attacks against a defendant who has a well established asset protection plan. Judgment creditors are cost conscious and if the efforts to collect are just too difficult, then that creditor is likely to settle for far less than the amount of the judgment or move on to easier prey.

Definition of Asset Protection Planning

Technically, asset protection planning is the process of organizing one’s assets and affairs in advance to guard against risks to which the assets would otherwise be subject. The phrase "in advance" warrants strong emphasis. One who is planning to protect assets must be cautious and avoid the negative implications that may follow if there are creditors who are entitled to remedies under applicable fraudulent transfer and similar laws. Asset protection planning may be applied to protect every type of asset, including an operating business or a professional practice.

Goals of Asset Protection Planning

The goals of the asset protection component of estate planning are varied but all must be addressed to create a high-quality plan. The plans must be user-friendly or they are doomed from the beginning due to the client’s discomfort with an unfriendly plan. Since being a party to a lawsuit is often a loss in the client’s mind, plans must be drafted to deter litigation. The plan must provide an incentive for an early and cheap settlement if it fails to deter the litigation in the first place. The net effect of the deterrence or an early settlement is to level the litigation playing field between the plaintiff and the defendant. This leveling enhances the client’s bargaining position. Any plan must be flexible enough to provide options as the game is played because litigation may not come from the originally considered source. The overall goal of any plan is for the client to ultimately win the game.

Bloodline Planning

Bloodline planning ensures that wealth is protected and stays in the family bloodline.. Bloodline planning also reduces the effect of inheritance taxes over generations and protects your wealth from creditor claims. This ensures that the value of your estate is maximized for future generations.

A properly designed Dynasty Estate Plan is:

  • Divorce Protected from Ex Son-In-Laws and Ex Daughter-In-Laws
  • Keeps Assets in your Family Bloodline
  • Asset Protected from all future Lawsuits, Creditor Claims, Bankruptcy and even the IRS
  • Minimizes Income Taxes
  • Minimizes or Eliminates Estate Taxes
  • Minimizes or Eliminates Generation Skipping Taxes (no 2nd tax on assets to grandchildren)
  • Avoids Creating Trust-Fund-Heirs by Protecting them from alcohol, drugs, or gambling
  • Avoids the Delays and High Costs of Probate
  • Creates a Legacy for you to Pass On to Future Generations

Bloodline planning advice
We work at the cutting edge of bloodline planning advice to protect our clients’ wealth. We offer free consultations to allow you to find out more about the benefits of bloodline planning.

Bloodline planning considerations
Bloodline planning is a complex area of advice with a many associated considerations to be taken into account. Along with the overall objectives of bloodline planning, we produce solutions that account for tax and inheritance tax efficiencies in relation to the distribution and passing on of wealth.

Management of bloodline planning
All of our clients work on a one-to-one basis with their private chartered advisor. Our bloodline planning process has been developed to provide transparency of outcomes and ongoing risk management.

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We offer all of those looking to find out more in relation to their bloodline planning options a free consultation to discuss their requirements and find out more. Our clients choose to work with us as a result of our commitment to excellence and the highest of professional standards.




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