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Estate Planning 2012: You’re on the Clock

May 11, 2012

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Estate Planning 2012: You’re on the Clock
Historic tax saving opportunities set to expire

When it comes to estate planning, timing is everything. Frequently changing tax laws make some years more favorable than others when it comes to transferring assets from your estate. The Tax Relief Act of 2010 created a historic opportunity for tax referenced asset transfer.  But there’s a catch: Conditions will likely change come January 1, 2013.

Now is the time to ask an important question, “Can I benefit from the current opportunities in the estate and gift tax code?”  If you’re not sure, we would love to speak with you about your situation and the current opportunity.  Here are some tips on how to approach planning your estate.

Current Provisions Provide a Limited Window for Planning


The Tax Relief Act of 2010 increased the estate and gift tax lifetime exemptions to $5 million for individuals and $10 million for married couples.  Additionally, the tax rate for estate and gift transfers was lowered from 55 percent to 35 percent.

Unfortunately, these conditions will last only until the end of this year. Beyond 2012, no one knows what will happen.  If Congress does not take action, the exemption will drop to $1 million in 2013 and the tax rate will increase to 55 percent.  This means a couple transferring $10 million in assets in 2012 could pay no estate tax, while that same transfer in 2013 could generate a $4.4 million tax liability.

What’s the best way to take advantage of this opportunity?


Every situation is different.  That’s why ongoing estate planning is so important.  That said, there are some general guidelines for estate planning. When moving assets from an estate, selecting the right assets is critical. If an asset is going to appreciate in value, it is favorable to move it out of the estate.  The longer you wait, the more costly it will be to transfer.

On the other hand, cash is typically not the best thing to transfer.  It won’t appreciate in value and it goes directly against the lifetime exemption – there is no opportunity to discount the value for tax purposes.  Stock and investment assets are generally better than cash – they are expected to appreciate – but like cash they provide no opportunity to be discounted for tax purposes.

Closely held businesses and real estate are often the best assets to transfer. “Minority discounts” and “lack of marketability discounts” can allow assets to be transferred from estates at discounted values for tax purposes. This means even more than the exemption amount could potentially be transferred tax free.

The Clock is Ticking


While the current estate and gift tax exemptions don’t expire until the end of the year, time is of the essence already. Now is the time to start the process if you hope to benefit from current tax provisions. Estate planning requires substantial thought and time. Various professionals must work together to develop and execute a plan. Non-cash assets may require valuations before the process can be complete. As many individuals work to transfer assets before the end of the year, qualified advisors will have less time to take on new clients.

Current conditions provide a once in a lifetime opportunity. Delaying action could jeopardize your ability to benefit.


Ongoing Planning is Essential

Many people think that estate planning is something to do once then forget about.  But the reality is that frequently changing tax laws create new opportunities, while family and personal dynamics also change often enough that a well-thought out plan from a few years ago could already be obsolete. It is vitally important to update your will and review your estate with a qualified advisor on an annual basis. Keeping current will help you take advantage of opportunities when they arise, while ensuring that your intentions are clear – helping avoid any potential future confusion and discord when an estate is passed on.



Qualified Advisors Bring Value beyond the Law

Effective estate planning requires not only knowing tax and estate law, but also knowing the individuals and assets involved in an estate. When an estate tax planner knows both, they are in a position to help their client transfer wealth in the most tax advantaged manner.

At Baker Milligan, we take the time to get to know our clients and their families.  When dealing with your estate, it is critical to work with someone that you know and trust.

Communication and coordination are also essential. In this process you’ll need help from multiple advisors.  A CPA with good estate planning experience should coordinate members of the entire estate planning team which may include financial planners, attorneys, valuation professionals and other professional advisors. Having a team working together is essential to carrying out the wishes of the estate. We communicate with our clients and their other advisors to make sure their tax and financial outcomes are optimal and that their estate plan reflects their goals and values.

If you haven’t reviewed your estate lately, or if you just want to learn more about the current opportunities, give us a call today. Our team is ready and willing to talk with you about your specific situation.

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This entry was posted on Thursday, May 10th, 2012 at 11:59 pm and is filed under Blog, News. Both comments and pings are currently closed.

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