By: Martin M. Shenkman, CPA, MBA, JD
Introduction/Overview: the 2010 Tax Act made huge changes. How does it affect 2011 planning?
√ Question: With a whopping $5M exemption can most Americans ignore the estate tax?
√ Answer: The gift, estate, and generation skipping transfer (GST) exemption amounts are now and will remain essentially the same (reunification) through 2012 at $5 million. The gift, estate and GST tax rate has been reduced to 35%. This does not mean that those with under $5 million in assets can ignore planning as in 2013 the amount drops to $1 million and the rate jumps to 55%.
√ Question: So is 2011 and 2012 a good time to plan?
√ Answer: 2011-2012 presents a historic opportunity for wealth transfer. For the ultra-high net worth taxpayer, the retention of the outstanding rules for grantor retained annuity trusts (GRATs), discounts in valuation, low interest rates, and the granting of a $5 million gift exemption are a unique convergence of positive planning attributes that has never existed, and which may only be available for a short time. 2011-2012 provides the best opportunity for physicians, professionals, and others concerned about asset protection to safeguard their wealth-it has produced the 'perfect storm' for asset protection and estate planning.
√ Question: What happens in 2013 if someone made a $3 million gift in 2011 and the exemption drops to a mere $1 million?
√ Answer: Great question, no one knows for sure. We believe that it will simply increase the estate tax on death, since the calculation of estate tax includes all taxable gifts, i.e., the $3 million and whatever is in their estate on death.
√ Question: So why make gifts now?
√ Answer: Asset protection needs are met. From a tax perspective, discounts are locked in and all growth is out of the estate and state estate taxes can be saved.
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