NEW Estate Tax Laws Don't Solve ALL Your Estate Issues

Well they did it again. A last minute deal in Washington called the American Taxpayer Relief Act of 2012 kept us from falling over the Fiscal Cliff. While some predicted that Congress would with allow the estate tax exemption to fall to $1 million, and others predicted the estate tax exemption would settle in at around $3.5 million, the end result was even more generous to families.

The key components to the NEW estate tax are:

1. The estate tax exemption for 2013 is $5 million (increased slightly annually for inflation);
2. Portability remains intact.

Portability is important. It's only been around for a couple of years. In the past, married couples were required to engage in complex legal strategies to make sure that each spouse fully utilized each spouse's estate tax exemption. Now, though, with portability in place, so long as the proper elections are made within nine months after the death of the first spouse (call us to make that happen after your spouse dies), married couples will be permitted to give or bequeath more than $10 million in assets to their children or other loved ones.

But there's so much more to protecting your estate than avoiding estate tax. Let's take a look at some of the issues you will want to address as you try to protect your estate for yourself and your family:

1. Make Your Estate Settlement Simple. There are a number of things you can do to simplify your estate settlement, from having customized Wills and Trusts, along with correctly titling your real estate, and accounts, and beneficiary designations. Getting this right can save your family months or years of frustration and a heap of estate settlement costs. Many Louisiana families today are taking advantage of Succession avoidance trusts to allow trusted and designated family members to completely control the estate settlement process quickly and without outside cost and delay.
2. Other taxes. While the estate tax is more generous to families, income tax and capital gains tax rates are on the rise. Most estates and heirs wind up paying income tax and capital gains tax, and it's important on the front end to do what you can to keep your family burdened with unnecessary income tax, capital gains tax, property tax or other tax.
3. Long Term Care Costs. Louisiana residents that have worked a lifetime to save up a nest egg of a few hundred thousand dollars will see it all go poof if they have a long term care stay in a nursing home. I spoke with a woman last week whose parents spent three quarters of a million dollars on their long term care, and were in the process of cashing in all of their life insurance policies and spending that, prior to qualifying for Medicaid assistance. The key here is to plan early - ideally at least five years before you enter the nursing home.
4. Protecting Your Children's Inheritance. You can protect your children's inheritance from their divorces, and you can protect your children's and grandchildren's inheritances from their future bad decisions. Your descendants won't value their inheritance as much as you valued it while you earned it, so you can put measures in place to make sure it's used for the right reasons.
5. Keeing Your Plan Current. Your family circumstances change. Laws and estate planning trends change. While they say that our new estate tax laws are permanent, note they are permanent only until they change them again. Review your legal plans at least every five years and update them as necessary.

 

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