Don’t Miss Out! Just 13 Months Left to Act on Planning Opportunities under the 2010 Tax Relief Act

by Jackie Bedard on December 1, 2011

in Estate Planning,Estate Tax,Trusts

The following article originally appeared in an issue of The Daily Plan-It, a free newsletter provided courtesy of Carolina Family Estate Planning to Triangle-area financial professionals.  If you are a financial professional that would like to learn more, please click here to request a subscription.

The Tax Relief Act of 2010 is a short one. Most advisors are clear about what the law provides. This legislation jumped the gift-tax exemption from $1 million to $5 million, which means clients can now gift the greatest amount ever without paying out-of-pocket dollars on gift taxes. Before now, transferring significant assets could require complex strategies.

Time Moves Fast

Regardless of what you predict will happen after the next presidential election, the question is, why wait until then? The window to help your clients transfer wealth is now. These changes expire after the close of 2012, so the window in which to act is limited. This can be a golden opportunity, but there are some things your client needs to understand.

Work around Old Clauses from Old Laws

Certain types of clauses in older estate-planning documents can, under the new rules, have undesired consequences.

For instance, let’s say your client and his/her spouse have a $4 million estate owned equally. The client’s Will, prepared referencing the prior 2001 Act, might call for “an amount up to the federal estate-tax exemption” to be transferred to a Trust for the benefit of children, with the balance passing to the spouse. The exemption in 2001 was $675,000, so if your client died that year with a $2 million estate, the former amount went to the Trust, and $1.3 million went to the spouse. It’s different now that the estate tax exemption has jumped to $5 million. If your client dies tomorrow with a $2 million estate, the same wording would deliver all of that money to the Trust. The spouse could get nothing. The lesson here is this: Revisit those old plans now!

What About Dynasty Trusts?

The new rules also make certain types of Trusts more attractive—like the so-called Dynasty Trust (allowed in more than half of U.S. states and the District of Columbia), which can shelter assets from estate taxes for generations. The sudden ability to move as much as $5 million into such a powerful strategy is a very unique opportunity you should share with clients.

Watch Out for State Tax Issues

Not all states follow the same new rules. Have your client’s estate planning attorney analyze how the new rules would apply to their assets. Right now could be one of the best opportunities for you to help clients make significant wealth gifts under a very generous (but short) window. Remember, you have 13 months and counting. I hope this article has helped you and your clients. As always, please call our office for any guidance you need.

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