On January 1st, Congress agreed on permanent estate tax rules that are much more generous than previously expected. Under the new rules, a taxpayer may shield up to $5.25 million from estate taxes ($10.5 million for couples), and must pay 40% on amounts over the exemption, up to 35% from last year. Had Congress done nothing, the exemption would have fallen to $1 million ($2 million for couples), and the rate would have jumped to 55%. On top of that, the estate and gift tax remain unified, meaning an individual can use his entire exemption to make gifts while alive.
There was a burst of activity late last year, when people rushed to lock in favorable tax rules before the possible change on January 1st. U.S. Trust has published that it created six times as many trusts in December 2012 as in December 2011.
Most people making financial gifts or creating an estate plan choose to set up trusts. Trusts are helpful because they pass funds along to the next generation and can shield assets from divorce or other legal actions. The trust must have a “trustee”- a banker, lawyer or family member or friend responsible for managing its finances and making decisions about funding heirs’ needs, from college to wedding and mortgages. Trusts also provide flexibility to distribute assets to children or beneficiaries at dedicated ages such as 30 or 35. This can be helpful if a concern exists about spending the money too quickly.
With the estate tax exemption made permanent, families with less than $10.5 million who had set up trusts to hold annual gifts to kids and grand kids might be tempted to cancel them and distribute the money under the new lifetime gift-tax exemption of $5.25 million ($10.5 million for couples). But there are some big caveats to liquidating a trust. If your heir or beneficiary gets divorced, an ex-spouse could get part of the money.
If you are interested in learning more, contact one of our estate planning attorneys at 248-656-6800 to discuss creating or reviewing a trust.
No comments:
Post a Comment