At present, several factors are combining to make for wonderful conditions for wealth preservation in estate planning. Those factors are favorable tax laws, a struggling economy, and low interest rates. Taking advantage of the current estate planning environment
At present, the estate tax exemption amount is at $5 million for individuals and $10 million for married couples. This means that estates below these amounts will face no estate taxes until the end of 2012, after which the exemption will revert back to $1 million unless Congress takes action.
Two factors adding to these high exemption amounts are the low value of real estate assets and securities, as well as low interest rates, making it more attractive to give assets away and make loans to children and to trusts. Additionally, exemption amounts are portable between married couples provided an estate tax return is filed on the deceased spouse within nine months of death.
The federal gift and estate tax is unified, so individuals may give up to $5 million ($10 million for couples) in gifts during life, or at death, free of taxes. But individuals can also give up to $13,000 away annually. Those who prefer not to make gifts now have the option of setting up trusts which benefit from current tax rules.
There are a number of trust strategies and options to take advantage of in the present estate planning climate. One popular choice is grantor-retained annuity trusts, especially because of low interest rates and low real estate values. Generation-skipping trusts-which allow one to set aside money for grandchildren-are also popular, as are charitable remainder annuity trusts, qualified personal resident trusts. One thing to keep in mind, though, about the various trust strategies is that they should serve your estate planning needs, not merely achieve tax savings for you, as important as that is.
Source: Investment News, “A “perfect storm’ for estate planning,” Andrew Osterland, November 6, 2011.