Brown & Streza Blog
Jan 27

Written by: Matt Brown
1/27/2011 1:27 PM  RssIcon

Estate planning just got a lot more powerful. We all remember the Congressional fight over tax legislation last year. Democrats wanted unemployment benefits extended, and Republicans wanted massive tax cuts. President Obama’s compromise included a provision nobody anticipated – a $5 Million gift tax exemption. It is precisely the no-fiscal-analysis-whatsoever, horse-trading approach to these negotiations that suggests that this is a short-term deal that will not outlast the next two years.

This is extraordinary because the gift tax exemption has never been higher than $1 Million. The power of gifting early, before assets have a chance to appreciate, is a favorite tool of estate planning attorneys. Congress has indeed opened the estate planning floodgates.

There is a catch. This opportunity will only last for two years.

Everyone should be updating their estate plans to deal with some very serious issues created by this new law. Blended families may inadvertently give more or less than intended to a surviving spouse and/or children and stepchildren. And almost all families will now be forced to deal with a new income tax “gotcha” created by this new larger exemption.

For those with estates of less than $5 Million, strategies such as asset protection and multi-generational wealth preservation planning have now become available and affordable. These should be discussed while updating the basic planning documents to avoid problems created under the new law.

For those with estates between $5 Million and $25 Million, not only is asset protection more available, but so is the ability to entirely eliminate estate tax exposure for multiple generations.

And for those with estates of $25 Million or more, the next two years will be a golden era of wealth transfer that is unlikely to exist ever again. In the past, short of massive charitable giving, such mammoth estates were virtually certain to pay an enormous estate tax bill.

Is This All About Taxes?

Estate planning is about much more than taxes. It is about ensuring your wishes are known and honored. Families change, needs and interests change, and sometimes your plan should change accordingly. The changing tax landscape acts as a reminder that you should revisit your estate plan regularly.

In the past, estate planning documents were driven largely by tax-driven formula clauses. These formula clauses generally made sense when the tax law was predictable. In an era of unpredictable tax laws, it has now become critical to add significantly more customization to your estate planning documents to ensure that, no matter what the tax law, your wishes are carried out.

Click on link below for a more detailed newsletter regarding the New Estate Tax Legislation.

WC New Estate Tax Legislation Newsletter.pdf

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Categories: Estate Planning
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