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2010 Tax Act: Estate Planning & Asset Protection

Posted on: March 24, 2017 at 4:06 am, in

The 2010 tax laws will affect your estate planning strategies.

In 2010, President Obama signed into effect the 2010 Tax Act, which has been the most radical change made to the estate-tax system in many years. While the changes are generally positive, much of the advice clients have read or heard from media sources have not been entirely true. In order to preserve hard-earned wealth, estate planning has been an essential part of financial planning. Educating clients on these new options that are available as a result of the new law is important.

2010 Tax Act Changes by Obama

Through 2012, the estate and generation-skipping transfer and gift exemption amounts will stay consistent. These amounts will stay at $5 million and at $10 million with portability. Portability is the right that is given to a surviving spouse to use unused estate-tax exclusions of the deceased spouse. The gift and estate tax was originally set at 55% and that has been reduced to 35%, taking effect sometime in 2011. All clients need to be aware that these changes in the percentage are only temporary for 2 years. They will no longer be in effect after 2012. In 2013 the exemption will be $1 million and 55%. All advisors should be helping their clients to plan for the estate-tax ups and downs they will experience in the future. Without taking advantage of the changes, the result could have a huge effect on estate planning in the future. All well-to-do clients should evaluate the current risk of not taking advantage of the huge exclusion while it is available. If wealthy clients make gifts now, they can remove all future appreciation from an estate. This will allow for minimal tax damages in years to come.

Update Estate Planning Goals

People are urged to revise and review all of their estate plans and documents due to this new legislation. People should not assume that any of their existing papers will meet estate planning goals because many of them will not. The consequences that have resulted from the 2010 Tax Act are very far-reaching and may come as a surprise to many. The documents from recently signed wills, old irrevocable trusts, powers of attorney, insurance coverage, prenuptial agreements and business agreements must all be reviewed and revised if necessary. For the majority of taxpayers, corrective planning steps will be essential. Any person who sits idly by may soon find that they will dearly for this approach instead.
The next two years will be very important in regards to estate planning and wealth transfer. For taxpayers who are very wealthy (a high net worth), an intersection of excellent planning attributes, including discounts in valuation, low interest rates, the granting of a $5 million gift exemption and the retention of favorable rules for GRAT’s (Grantor Retained Annuity Trusts) may be available for a limited time. The years 2011 and 2012 will be the best time for professionals who are concerned about asset protection in the attempt to safeguard their wealth. Jonathan Blattmachr, one of the directors for Eagle River Associates and Alaska Trust Company states that the new tax legislation has “produced the ‘perfect storm’ for asset protection an estate planning.” The new but temporary $5 million gift exemption will provide a wonderful opportunity for all clients that desire asset protection to shift their wealth into domestic asset protection trusts and this can be done without worrying about a confiscatory gift tax.
The question is whether clients should make gifts in 2011 and try to avoid expensive estate planning down the road. Even though making large gifts is fairly simple, this plan could be inadequate. Financial and estate planners should help their clients to evaluate whether they will benefit from making large gifts now.
Click the following link to read Part 2 of our article 2010 Tax Laws: Estate Taxes, GRAT, Life Insurance, Trusts. We discuss in Part 2: How will the 2010 tax laws by Obama will affect estate planning strategies?