Federal Estate Planning prior to 2013

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jamesdz
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Joined: Fri Aug 10, 2012 5:01 pm

Federal Estate Planning prior to 2013

Post by jamesdz »

Dear Boggleheads,
I attended a estate planning presentartion last night in which the reduction of the Federal Esate Tax exemption from
~M$5 to M$1 was discussed by an attorney.
The opportunity to gift up to M$5 to family members prior to 2012 Year-end was presented as a possible option to help
reduce the Federal Estate Tax liability beginning in 2013.
Has anyone actually taken this approach in gifting a son/daughter a significant amount of money/assets prior to year-end ?
So far I have just been assuming that congress will pass some change to the estate tax law that will increase
the exemption to a higher amount - i.e. M$3 -M$5.
Would appreciate any thoughts/comments on this subject.
Thank you.
Jim D
Alan S.
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Re: Federal Estate Planning prior to 2013

Post by Alan S. »

Lack of response may indicate that this "opportunity" is only of interest to the very rich.

One pitfall of gifting a large amount this year is that there is no firm guidance on how the new estate provisions will deal with these large gifts made in 2012. If the unified credit drops enough and there is no reset, you might be limited to the 13k annual exclusion or having to file and pay gift taxes on amounts in excess of the 13k because your unified credit will have already been applied. And even worse if the gift and estate credits are not unified and a lower gift tax limit applies as it has in the past.

It would be very nice if the gift and estate tax laws were required to run for 20 years or so. Estate plans should not be subjected to annual tax code changes and recent years have seen an incredible windfall to estate attorneys. For the last 15 years there has been a constant reducing of the expiration time for estate and gift tax provisions and now we are down to a year by year expiration. The only way it can get worse is to have a dual system like we had in 2010.
Topic Author
jamesdz
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Joined: Fri Aug 10, 2012 5:01 pm

Re: Federal Estate Planning prior to 2013

Post by jamesdz »

Thank you for the response Alan.
I think that I will just sit on the side-lines & assume/hope that the Federal Estate Tax Exemption is negotiated to
a higher level than M$1 in 2013. If not....will just have to plan to stay around for a few more years (humor intended) !
Regards.
JimD
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Steelersfan
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Re: Federal Estate Planning prior to 2013

Post by Steelersfan »

I'm not doing anything, with the firm belief that Congress will change its mind on this several times before it applies to me.

And I have no hope of predicting what the outcome will be at that time.
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dbc47
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Re: Federal Estate Planning prior to 2013

Post by dbc47 »

I was going to start a thread on this subject, but did a quick search and found that it has already been brought up. My dear 'ol Dad is 92 years old and we've been discussing this possible fiscal cliff thing for awhile now. I've convinced him that he should make an appointment with his estate attorney to see what things can/should be done prior to the end of the year. He net worth is in the $5m to $6m range so if the estate laws change to $1m then his estate will be severely effected. Everything is guess work now because nobody knows what if anything is going to happen at year end. One thing he could do is perhaps distribute some to his 3 kids, but that sounds greedy. He doesn't want the government to get the most of it and he keeps asking my advise prior to his meeting with the attorney. I just tell him that I'm certainly no expert, but that I'd just hate to see it go the government instead of his family. He may end up donating some, but who knows? I'm hopeful that the attorney has some good ideas.
smackboy1
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Re: Federal Estate Planning prior to 2013

Post by smackboy1 »

dbc47 wrote:One thing he could do is perhaps distribute some to his 3 kids, but that sounds greedy.
Another choice is to create a trust and make a gift to the trust.

http://online.wsj.com/article/SB1000142 ... 82522.html
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.
Alan S.
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Re: Federal Estate Planning prior to 2013

Post by Alan S. »

This might be a case where this year's 5mm gifting limit becomes compelling. It would eliminate estate taxes on his estate. Another possibility is to gift enough to reduce his estate to under 3.5mm which is the likely minimum unified credit we get from estate tax revisions. Of course, Congress proved in 2010 that the rational and expected result of almost all the pundits did not happen.

Gifting to a trust for beneficiaries is a consideration if sheltering the funds from creditors or spouses applies to any benficiary.
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dbc47
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Re: Federal Estate Planning prior to 2013

Post by dbc47 »

Thanks for the information! I'll pass this on to Dad so he might be able to better prepare for his meeting with the attorney. He already has a Revocable Trust which is a good thing.
Thanks again!
fx24
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Re: Federal Estate Planning prior to 2013

Post by fx24 »

I've just had a comprehensive briefing with an expert attorney regarding this. I'm told Romney supports elimination of the estate tax and Obama supports a 3M exemption. The legal industry believes that "some" estate tax will remain. And it should IMO. Pardon this tangent... Consider Bill Gates. He has not yet "realized" vast amounts of his gain in MSFT stock. It has therefore never been taxed. If there was an unlimited exemption, that huge gain (never taxed) would goto heirs who would get stepped-up basis.... with no tax. IMO, there should be an estate tax but with a high exemption, say even $50M. To me, it is just not fair to allow massive unrealized gains to pass without any tax.

Now back to the OP, the key to the $5.12M exemption is that, gifted money no longer belongs to you. YOU'RE giving up money during your lifetime so that THEY won't be burdened by a tax. That loss of control is a real concern. You cannot "agree" with the receipent for them to pay you or help you should you later need money. They own it and they cannot use the money pay your rent, insurance, health bills. Thats evasion.

Alternatives exist. There are SLATs where spouses gift to each other and where spousal control is retained. There are also GRATs which allow earnings (not principal) to be gifted to a beneficary. GRATS leave you in control of your principal, you simply gifting earnings.
xerty24
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Re: Federal Estate Planning prior to 2013

Post by xerty24 »

fx24 wrote:I've just had a comprehensive briefing with an expert attorney regarding this. I'm told Romney supports elimination of the estate tax and Obama supports a 3M exemption. The legal industry believes that "some" estate tax will remain. And it should IMO. Pardon this tangent... Consider Bill Gates. He has not yet "realized" vast amounts of his gain in MSFT stock. It has therefore never been taxed. If there was an unlimited exemption, that huge gain (never taxed) would goto heirs who would get stepped-up basis.... with no tax. IMO, there should be an estate tax but with a high exemption, say even $50M. To me, it is just not fair to allow massive unrealized gains to pass without any tax.
You don't actually make any arguments in support of your position besides saying "it doesn't feel right". Well it feels right to me that everyone else should pay more taxes, rich and poor alike, and that I should pay less... A common sentiment I imagine.
You cannot "agree" with the receipent for them to pay you or help you should you later need money. They own it and they cannot use the money pay your rent, insurance, health bills. Thats evasion.
It's their money after the gift and they can spend it on your health bills or a new car or anything else they want. It's not a gift if there's a contract they have to pay your bills, but they can say they will and that's fine since there's nothing enforcing it later if they change their mind.
Alternatives exist.
indeed. The estate tax is largely a tax on poor planning and a gift as it were to the estate planning legal community. It really only hits those who can't afford or lack enough assets to justify top notch legal advice and maneuvers.
No excuses, no regrets.
bluemarlin08
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Re: Federal Estate Planning prior to 2013

Post by bluemarlin08 »

Consider Bill Gates. He has not yet "realized" vast amounts of his gain in MSFT stock. It has therefore never been taxed

That is no different than if you or I owned highly appreciated assets and at death no tax is due due to step up in basis.
ljay
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Re: Federal Estate Planning prior to 2013

Post by ljay »

I am a trust officer and this is a technique that is being employed by a number of my highest net worth clients. For real sophistication the utilization of FLP's and gifting non-voting and minority interest shares as well as a couple other techniques can get substantial wealth out of the estate of a HNW person/couple.

There is one issue that I warn about and it is entitled "clawback". Do a Google of "gift tax clawback" to learn more. This has to do with how the tax is computed on the Form 706 Estate Tax Return (all large lifetime gifts are scheduled on the return).

For the history of the gift tax exemption it never rose above $1 million even when the estate tax exemption rose above that level (thus, "decoupling" the "unified exemption"). When they forced through the patch a couple years ago I wonder if the Washington folks even knew they were taking the gift tax exemption from $1 million to $5 million plus inflation adjustments (thus, $5.12 million today). Personally I don't think they knew that the the estate tax and gift tax exemptions were decoupled so they gave us this great planning opportunity.

Do not even contemplate doing this without professional representation guiding your path.

For the rest of us mere mortals the $13,000 annual exclusion remains as the gifting vehicle of choice. That is likely to rise to $14,000 in 2013.
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Re: Federal Estate Planning prior to 2013

Post by LadyGeek »

As a reminder, discussions of proposed legislation are off-topic for this forum. (See: Forum Policy)

Please stay on-topic.
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