Wade Law Blog

Don’t Miss Out! Just 16 Months Left to Act on Planning Opportunities Under the 2010 Tax Relief Act

Sep 12, 2011| BY: Wade Law Offices

The Tax Relief Act of 2010 is a short one. For those that don’t know, this legislation jumped the gift-tax exemption from $1 million to $5 million, which means you can now gift the greatest amount ever without paying out-of-pocket dollars on gift taxes. Before now, transferring significant assets could require complex strategies.

Time Moves Fast

Regardless of what you predict will happen after the next presidential election, the question is, why wait until then? The window to transfer your wealth is now. These changes expire after the close of 2012, so the window in which to act is limited. This can be a golden opportunity, but there are some things you need to understand.

Work around Old Clauses from Old Laws

Certain types of clauses in older estate-planning documents can, under the new rules, have undesired consequences.

For instance, let’s say you and your spouse have a $4 million estate owned equally. Your Will, prepared referencing the prior 2001 Act, might call for “an amount up to the federal estate-tax exemption” to be transferred to a Trust for the benefit of children, with the balance passing to the spouse. The exemption in 2001 was $675,000, so if you died that year with a $2 million estate, the former amount went to the Trust, and $1.3 million went to your spouse.

It’s different now that the estate tax exemption has jumped to $5 million. If you died tomorrow with a $2 million estate, the same wording would deliver all of that money to the Trust. Your spouse could get nothing.

The lesson here is this: Revisit those old plans now!

What About Dynasty Trusts?

The new rules also make certain types of Trusts more attractive-like the so-called Dynasty Trust (allowed in more than half of U.S. states and the District of Columbia), which can shelter assets from estate taxes for generations. The sudden ability to move as much as $5 million into such a powerful strategy is a very unique opportunity you should look into.

Watch Out for State Tax Issues

Not all states follow the same new rules. You should have your estate planning attorney analyze how the new rules would apply to your assets.

Right now could be one of the best opportunities for you to make significant wealth gifts under a very generous (but short) window. Remember, you have 16 months and counting.

Asset Protection, Tax Planning

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