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It is axiomatic that estate plans should be reviewed every few years. Family considerations are most important. But external factors such as the economy and possible governmental actions also play a key role in in necessitating consideration of changes in wealth transfer planning.
The market downturn has obviously affected estate planning. Not only may retirement assets be less and beneficiaries receive less, but also previously taxable estates may no longer be taxable. Also, with the current federal estate tax exemption, many estates may no longer be subject to such tax, even if or when the economy improves. Under present law, the federal estate tax is scheduled to disappear in 2010, but reappear in 2011. It is likely, however, that legislation will be passed this year to freeze the current exemption for 2010 and possibly 2011; all bets are off as to what happens after that.
Without predicting the future, it is advantageous for you to consider your wealth transfer planning now. In this economy of low interest rates, strategies such as grantor retained annuity trusts (GRATs), charitable lead annuity trusts (CLATs), and intentionally defector grantor trusts (IDGTs), may be used to transfer wealth to your heirs with little or no gift tax.
Your current estate planning documents should be reviewed for another reason. Many individuals signed wills or irrevocable trusts leaving the federal applicable exclusion amount (formerly known as the unified credit) in trust for a spouse in order to reduce or eliminate a federal estate tax. This may have been prudent when such amount was $600,000 or $1,000,000 or $2,000,000, but with the current exemption (and likely for the next two years), this could tie up too much in trust for a spouse who would then be deprived of the free use of all such assets. If that was not intended, it may be advisable to leave assets outright to the surviving spouse, who would then have the ability to disclaim an amount an amount in a trust for his or her benefit in order to preserve the greatest flexibility and avoidance of estate taxes. Also, there is a proposed law for the federal estate tax to become portable for a spouse, so that the unused exemption on the first death could be added to the surviving spouse’s exemption, passing without a trust for the spouse and without estate taxes to heirs.
Two things in life are certain-death and taxes. Estate planning can insure that one doesn’t cause the other. The favorable estate tax laws may not and probably won’t, continue for much now. Planning now is a step in the right direction.
George Weinstein is of Counsel to Buckingham, Doolittle & Burroughs, LLP. in Boca Raton, Florida. He concentrates on estate planning and related income, gift and estate tax issues.
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