Christopher Burns, estate planning attorney with?Henson& Efron PA, sent me the following letter regarding year end estate planning ideas.?? I think the letter does a nice job of laying out the opportunities.??He was kind enough to let me share the letter with our readers.
November 28, 2012
Dear Rick:
As 2012 comes to an end, we have an estate planning opportunity that may never be seen again.? High gift, estate, and generation-skipping transfer (GST) tax exemptions, low interest rates and depressed asset values create the perfect environment for transferring wealth at less tax cost.
Simply speaking, an individual who has not already used a portion of his or her exemption with prior gifts may currently pass $5,120,000 to loved ones without the burden of any federal gift taxes.? This includes gifts to grandchildren, as the GST tax exemption is currently set at $5,120,000 as well.
These favorable tax provisions are set to expire at the end of this year, 2012.? Next year, the amount that individuals can pass to loved ones, whether during life or after death, without the burden of federal taxes is scheduled to drop significantly from $5,120,000 to $1,000,000. In addition, the top tax rate is scheduled to increase from 35% to 55%.
Due to these pending tax changes, there are several gifting strategies that we can help you with before the end of the year to reduce your current and future federal tax burdens.? A few of those ideas include making gifts, such as:
1. Write a check to loved ones.
2. Forgive outstanding loans and notes.
3. Create and fund trusts.? These trusts can hold a wide variety of investments including stocks, bonds, cash, life insurance, real estate (such as the family cabin), and equity interests in family businesses or investment entities.
4. Create and make gifts of Family Limited Partnership (FLP) or Limited Liability Company (LLC) ownership units.
5. Create and fund a Grantor Retained Annuity Trust (GRAT).
6. Create and fund a Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT).? These are trusts which in part benefit charity and in part benefit your loved ones.
While wealth protection strategies are often most beneficial for those with very large estates, once insurance proceeds are included, many estates can quickly exceed the scheduled 2013 $1,000,000 federal estate tax exemption amount and the current $1,000,000 Minnesota state estate tax exemption.
Even if you are not inclined to use any of the above estate planning strategies to make gifts in 2012, there are several income tax and Medicare tax strategies that you should be aware of as well:
1.???????? The maximum federal ordinary income tax rate is scheduled to rise in 2013 from 35% to 39.6%.? Also in 2013, the 3.8% Medicare tax on investment income (e.g., interest, dividends, capital gains) for couples with income greater than $250,000 ($200,000 for single filers) goes into effect.? Certain trusts incur this tax at lesser levels of income.? One tactic to mitigate these higher tax rates is to accelerate income into 2012.? For example, you may want to convert a traditional IRA to a Roth IRA; exercise nonqualified stock options; take more income from a family-owned business; have a bonus paid in 2012 versus 2013 (doing this will also avoid the 0.9% Medicare tax increase on wages over $250,000 that goes into effect in 2013).
2.???????? The federal tax rate on long-term capital gains rises from 15% (highest) to 20% in 2013.? You may want to sell some highly appreciated stock in 2012 to incur tax at a lower rate.
3.???????? The phasing-out of itemized deductions is also scheduled to return in 2013.? If the phase-out is likely to affect you, you may want to accelerate some 2013 deductions into 2012 (e.g., pay some or all of 2013 State income tax in 2012 versus in April 2013).
Given that significant time may be required to implement some of the strategies outlined above, we recommend you contact us as soon as possible if you wish to act before the end of 2012. ?We look forward to hearing from you.
Yours truly,
HENSON & EFRON, P.A.
Christopher J. Burns
This letter does not provide a comprehensive statement of the law and is meant as a basic summary.? For information specific to you, please contact us.
His contact information:
Christopher J. Burns Attorney at Law 220 South Sixth Street, Suite 1800 Minneapolis, MN 55402-4503 General Number:? (612) 252-2800 cburns@hensonefron.com www.hensonefron.comLike this:
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My focus as a Certified Financial Planner is to help business owners reach their personal and financial goals, and this blog will provide objective information on a wide variety of related topics, from goal setting to estate planning.Source: http://blog.epplefinancial.com/2012/12/04/2012-year-end-estate-planning-ideas/
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