Now that Congress allowed us to fall over the fiscal cliff, but quickly passed legislation to remedy many of the adverse tax consequences, it is time to focus on what actions you should take regarding your estate planning. Anyone who considered doing significant planning at the end of 2012 but didn’t, for whatever reason, missed one of the most favorable planning environments ever and the chance to save millions.
Now Congress is giving you a second chance, so don’t put it off or waste this new opportunity.
Long-term dynastic trust planning is still where people of means should consider putting much of their wealth. Congress did not toughen valuation discounting methods, so leveraged transactions with trusts are going to continue to be a powerful tool for long-term planning. Remember that the estate tax rate has been set at 40 percent, which is still a fairly high tax rate, especially if your family may face the tax generation after generation. So planning with multi-generational trusts will help navigate around a tax that may cut your family wealth at the knees every 25 years.
For taxpayers with even modest wealth, asset protection is still an integral part of estate planning in light of the new legislation. Congress did not outlaw lawsuits and creditors, so in addition to tax planning, it remains important to consider methods to shield assets from unknown predators and creditors that may materialize to try to take assets from you. Here again certain trusts, including Domestic Asset Protection Trusts, should be considered as part of your planning strategy.
Finally, planning with insurance policies is going to continue to be a powerful tool for taxpayers, especially when utilized in trusts. As mortality tables continue to lengthen, rates on insurance continue to drop, making insurance more affordable. These insurance products offer a significant source of leverage and liquidity for families, especially when housed in multi-generational trusts.
Taxes aside, everyone benefits from basic documents like a will, a revocable living trust, and powers of attorney. No matter your means, basic estate planning is always important.
Remember that nothing in Washington is permanent. The estate tax rate, the gift tax exemption and the entire wealth transfer tax system will continue to be susceptible to future alterations, especially as Congress looks to raise further revenue. If you stand to benefit from the current tax system, let 2012 be a warning to you. Take advantage of the beneficial tax structure while you can.