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Prepare Now for Moves on the Estate Tax
The nonstop discussion this year of health care reform and
the economy crowded out discussion on the estate tax, which was
scheduled to expire December 31. But as of this writing it
appears that the estate tax will be continued at 2009 levels
through 2010, which means that the 2010 top rate will likely be
45 percent and the exemption will be $3.5 million per person.
For now, the Republican dream of killing the estate tax seems
to be dead, at least through 2012 as federal spending continues
to expand. That means it's a good time to talk to tax and
financial experts about the best ways to pass your holdings to
the next generation no matter what happens with the future of
the "death tax."
If you suspect your estate or the estate of relatives you
might inherit from may fall prey to the estate tax, it makes
sense right now to enlist the help of experts. Assets may be
expected to grow over time, and your estate may turn out to be
larger than you may think. You should be talking to estate and
tax specialists as well as financial advisors such as CERTIFIED
FINANCIAL PLANNER™ professionals.
Here are some things to keep in mind as you prepare for those
conversations:
Give during your lifetime. You can now give $13,000
per calendar year per recipient without paying gift tax or
affecting your 1 million dollar lifetime exemption. You can also
pay someone's tuition or medical bills directly, or give to a
charity, without paying gift tax on the amount, thereby reducing
the size of your estate and your eventual estate tax bill after
you die.
Check whether your state charges an estate tax.
Roughly half of all states charge estate tax, and that's a
recent thing. States previously received a slice of the federal
estate tax, which no longer happens, so it's important to
consider the state's impact when making an estate plan.
Think about a life insurance trust. Whether you need
it for estate liquidity or for other purposes, an irrevocable
life insurance trust can be created to keep the proceeds of the
insurance out of your taxable estate. An added benefit is that
such trusts may permit spousal access to the cash value of the
policy. Yet note the word "irrevocable" — it means a
decision that cannot be changed.
Know if your assets are expected to increase. A
grantor-retained annuity trust, or GRAT, is an irrevocable trust
that is popular among families with assets that are expected to
increase, because such appreciation can be passed on to heirs
with minimal tax consequences.
November 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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