2013 Estate Planning – Still Not The Time To Be Complacent

The end of 2012 saw an unprecedented surge of activity for estate planning attorneys and advisors counseling clients to implement estate plans before the 2013 changes in the law, which would have reduced gift and estate tax exemptions to $1 million.  As it turned out, the American Taxpayer Relief Act enacted on January 2, 2013, did not reduce exemption amounts – they were set at $5 million and indexed for inflation (the 2013 gift and estate tax exemption amount is $5.25 million per person).

While the law is technically permanent, it does not mean that it cannot be changed.  If President Obama’s 2013 budget (the Green Book) is passed as proposed, the estate tax exemption amount will be reduced to $3.5 million (with no indexing for inflation), estate tax rates will increase to 45% (from the current 40% rate) and the gift tax exemption amount would be reduced to $1 million.  In addition, the President seeks to restrict the use of powerful estate planning techniques, including GRATs and Sales to Grantor Trusts.

While there may be a sense that you do not have to consider your estate planning now that exemption amounts are $10.5 million per couple, there are many reasons why this is an incorrect assumption, including (1) lower state estate tax thresholds, including New York ($1 million) and New Jersey ($675,000), (2) non-tax considerations such as proper designation of beneficiaries, the benefits of creating testamentary and inter-vivos trusts, appointment of executors, trustees and guardians, and appropriate asset ownership, (3) changes in your life situation, such as a new child, divorce, remarriage or beneficiary substance abuse, (4) the benefits of gifting assets during lifetime and (5) potential changes in the estate tax law in the future.

We have linked to this recent article in the New York Times, which highlights the need to continue to pay attention to your estate plan.