The election is over. We all now know that President Obama will be in office for another four years. What does this mean for the federal estate tax? What does this mean for families that want to keep what they have and pass it along to their heirs? We're not sure. But the following are a few observations about the estate tax and what you should be doing to protect your estate for yourself and your loved ones.
MAKE SURE YOUR ESTATE PLANNING LEGAL DOCUMENTS ARE IN ORDER
Even though we don't know what the future holds for the estate tax, there are strategies that can help your family keep what you have no matter what the law brings. We know that for the remainder of 2012, the federal estate tax exemption is roughly $5 million. This exempts almost all Louisiana families from being subject to the tax. However, if Congress and the President fail to pass new federal laws, the estate tax exemption will be $1 million for deaths occurring in 2013 and beyond.
It's critical now for married couples with assets exceeding $1 million in value to have their estate legal documents in order. If you have everything set up exactly right, and if the surviving spouse makes the right moves after the first spouse dies, married couples will be able to exempt $2 million from the estate tax, and no estate tax will be due after the first spouse's death.
With an estate tax exemption of only $1 million, many more Louisiana families will be burdened with an estate tax that starts at 37% and quickly rises to 55% of the value of your assets when you die. Properly structured trusts, wills, and powers of attorney are a must to make sure you protect your estate for your loved ones. Many more families will be faced with attempts to make "death bedZ transfers," but if the right estate legal documents and Rabalais Law Firm powers of attorney are not in place, your family may not be able to take the needed actions at the right time to avoid a 55% estate tax.
YOU CAN MAKE GIFTS ANNUALLY - BUT YOU MAY NOT WANT TO
Most people realize that you can give away $13,000 to as many people as you want to each year to reduce the value of your estate. Starting in 2013, you can give $14,000 to as many people as you want to. But you can't have your cake and eat it to. If you want to get it out of your estate, you have to give it away with no strings attached. Sure, you can put the gifts into a trust for your heirs, but you can't retain rights in the trust.
While many people are adamant that they want to avoid estate tax, they are reluctant to make gifts because they are concerned they might run out of money before they die - a valid concern. You have to weigh the fact that you want to keep control and access to your estate so that you won't run out versus the desire to avoid estate tax by giving it away during your lifetime. Good luck with that!
BIG GIFT FOR THE RICH - TIME IS RUNNING OUT
Since you can use your estate tax exemption either during your lifetime or upon your death, it appears that the super-wealthy have a one-time opportunity to give away $5 million to their heirs before 2012 ends without having to pay any gift or estate tax. If you have a good bit more than a $5 million estate, it appears that you can give away up to $5 million this year free of tax, rather than leaving it in your estate and leaving only $1 million to your heirs when you die free of estate tax. This one time opportunity though really only applies for someone who has more than a $5 million estate AND is willing to donate $5 million to their heirs before the end of 2012.
It's mroe important now than ever to have a pro-active, education-oriented, layman's speaking, book-authoring, technology driven, and well-endorsed estate planning law firm on your side to help protect you and your estate - not only from taxes but from all the other things that can go wrong with an estate that will tear your estate apart and rip family relationships to shreds.