As each year comes to a close I find many people “rush” to get their personal “to do” lists completed. One area I often see postponed is Estate Planning (most people think by postponing the planning for their someday death, well, then it will not happen!)
Major changes in Estate rules took place on 1-1-2013. Here is a very simple summary of some items:
• A 40% tax rate applies to any amount over the exemption amount for gift, estate or generation skipping taxes (GST)
• The exemption amount for all 3 methods of wealth transfer will start at $5 million per person indexed for inflation. The inflation adjusted amount for 2013 is $5,250,000.
• A surviving spouse can now claim any unused exemption amount from their deceased spouse, so, this can be added to their own exemption amount. (This is for Estate Tax only and does not apply to unused GST).
• The deduction for state estate tax has been repealed.
Planning for you:
* Net worth up to $500,000:
1.) Make sure your will is current
2.) Be aware that only probate property is transferred via a will. All other items, i.e., life insurance, qualified plans, etc. are distributed via beneficiary. Better check to see if you have the correct beneficiary.
3.) Joint property ownership of accounts with a child can create confusion, disappointment and angry disputes.
4.) Probate administrative fees can run 3.8% to 11% of your assets.
(My rule of thumb is if one’s net worth is above $100,000 they should use a Living Trust instead of just a will.)
* Net worth between $500,000 and $5 million
1.) Plan to transfer any unused portion of a deceased spouse estate to the surviving spouse (remember that portion is not indexed for inflation).
2.) Consider to continue using the strategy of a “credit shelter trust” and/or a spousal limited access trust (SLAT).
3.) Be prepared for simple growth in this size estate can place you above the exclusion amount and move you into the 40% tax range.
4.) Some state inheritance taxes can be as high as 15%, and remember, this is no longer a deduction on your Federal estate tax return.
5.) Consider gift planning to keep your estate size down.
6.) Look at life insurance to act as a “wealth replacement vehicle” for any state inheritance taxes, probate fees, or administration fees.
* Net worth over 5 million
1.) ILIT’S become a very important tool to minimize or eliminate estate taxes.
2.) With low interest rates consider using GRAT’s, CLAT’s and sales to intentionally defective trusts.
I find most people are unaware of how large an estate they have. It is NOT where your money goes to (a beneficiary), rather, who owned it at your death. So, all the life insurance you own is part of your estate.
Sit down with your Certified Financial Planner (CFP) to outline your goals and how you want things distributed. Do this before going to a Board Certified Estate Attorney. The reason being is that the CFP can see if your goals and plans to distribute are incongruent. Then, your CFP can share with the Estate Attorney your wishes in a language the attorney understands.
The metaphor I can use of this thought: If you think you have a heart condition…do not go to a marathon running trainer and plan a 2 month program to run 26.2 miles until you check with your cardiologist.