Agape Insurance Brokers
Integrity, Experience & Professional

Estate Tax Planning
Current Estate Tax Law

With the passage of the American Taxpayer Relief Act of 2012 (ATRA), Congress set the effective exemption for combined bequests and gifts at $5 million, indexed that value for inflation, and allowed surviving spouses to claim any exemption not used by their deceased mates. It also raised the rate to 40 percent, 5 percentage points higher than in 2012.
The estate tax has endured nearly constant change over the past dozen years. The 2001 tax act (EGTRRA) reduced the tax in steps, raising the effective exemption from $675,000 in 2001 to $3.5 million in 2009 and cutting the top rate from 55 percent to 45 percent before repealing the tax entirely in 2010. Because EGTRRA expired entirely in 2011, the repeal lasted only one year. But rather than let the tax return to its pre-EGTRRA status, Congress set new parameters for 2011 and 2012: a $5 million exemption and a 35 percent tax rate. The tax reverted to 2001 law at the stroke of midnight last New Year’s Eve.

ATRA reversed that just a few hours later. For the first time in over a decade, we have a permanent estate and gift tax. The wealthy will no longer have to arrange their gifts and wills in the face of uncertain law as they did in the closing months of 2010 and 2012.

There’s still a big incentive—moving a decedent’s assets into a trust can free subsequent appreciation from estate tax. And the first spouse’s estate must file an estate tax return to preserve the leftover exemption.

Most people spent a lifetime working hard to accumulate their wealth. It should belong to you and your family. Right? Think again. Like it or not, you have a partner—the IRS. As a matter of fact, starting at $3 million, the IRS will grab 55 cents (assuming you die after 2010) out of every dollar for estate taxes. The real horror story is that your family may have to sell off assets, which you would like to keep in the family, to pay estate taxes. 

There are 3 main ways for your beneficiary to pay for the estates taxes due:
1) Borrow from the bank
2) Quick sale/liquidate estate at a loss
3) Use available cashflow 

Of the 3 methods to pay for estate taxes, the first 2 ways will mean it will cost your family more than what IRS will ask for. Your beneficiaries will have only 9 mths to pay for the taxes.  If they are cash rich, they will probably have to use a substantial amount of it ...and hopefully that will not impede everything else that is going on, including the business. Regardless, there is a 4th method to takecare of it in the most cost effective way.... using a Last-to-die/2nd to die life insurance policy. Structured properly it can reduce your assets exposed to estate taxes and pay for the rest of it with a 75% discount (depending on the individual set of circumstance).

By planning ahead, you can neutralize the impact of estate taxes ...... no matter what future laws may be. As we have further discussions, you will understand that being successful has it separate set of challenges. Just as the saying goes.... only death and taxes are guaranteed...... the truth is..... it is not so much how are you going to avoid estate taxes but a matter of how you are going to deal with it in the most cost effective manner.

In summary, here are some ideas/concepts that may help you with this challenge.
  • lifetime gifting
  • Charitable Remainder Trust (CRT)
  • transfer of assets that has appreciated in value to loved ones and still enjoy a tax deduction for it
  • maximizing your lifetime gifts through legal leveraging
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned may not be suitable for everyone. Each investor needs to review strategy in light of his or her own particular situation. For more information, do not hesitate to call for more information.

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