March 2013

Lowcountry Lawyers: Estate Planning in 2013

Author: Elizabeth B. Mayo & Catherine Scarminach

By now, you have no doubt heard—probably with some relief—that as a result of last minute negotiations, the American Taxpayer Relief Act of 2012 made permanent the $5.250 million gift, estate and generation skipping transfer tax exemptions of 2012; adjusted each exemption for inflation; increased the gift and estate tax rate for estates and gifts in excess of $5.250M from 35 percent to 40 percent; increased the annual gift tax exemption to $14,000 per donee for 2013; and clarified “portability” of the gift and estate tax exemptions (but not the GSTT exemption) between spouses.

All that is mostly good news. And, while, at first blush, it may now seem unnecessary to plan your estate for tax savings anymore, the Act actually opened up a myriad of planning possibilities and may require some scrutiny of prior planning. For example, many pre-Act revocable trusts taking advantage of previously lower estate tax exemptions do not include the surviving spouse in the “B” or “Family Trust” to which the exemption amount is allocated or include the surviving spouse and children as current beneficiaries. This is especially true in a second marriage situation. Given the large exemption under the Act, you may want or need to reconsider the dispositive terms of your “Family Trust.”

Portability of unused exemption amounts after the death of the first spouse may eliminate the tax need for trusts in planning for couples with less than $5.250M in total assets. However, preservation of the exemption may still be important. In addition, there still remain many non-tax reasons to continue or establish trusts, including planning for your own, your spouse’s or your children’s disability or incompetence.

The Act makes gifts less tax-expensive. And, gift tax discounts are still available for use with the increased gift tax exemption to reduce gift tax costs and to reduce future estate tax liability.

Trusts continue to be effective asset management tools to avoid probate administration and will contests and to provide for the distribution and management of your assets during your lifetime and at death. Whether your current plan needs to be updated or reviewed to fit your current life situation or you want to consider the effects of the new Act on your estate, the “new” year is an excellent time to do it.

For further discussion or more information, please contact the Law offices of Novit & Scarminach.

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