Estate planners know that the past few years have been crazy with the ups and downs in estate and gift tax exclusion amounts. So how does this craziness affect those who want their estate planned?
For starters, it affects the extremely wealthy. But soon, there's a strong chance that the estate and gift tax laws will reach a greater number of people.
The past few years have been riddled with changes and uncertainty in the estate planning world, particularly with the 2010 estate tax lapse.
This year has been one of the craziest and estate planners are bracing themselves for a heavy workload at the end of the year. Here’s the thing— this year, the lifetime gift tax exclusion is set at $5,120,000.
That’s just for singles. A married couple can give away $10,240,000.
Translation: While you may have already known that you’re allowed to make tax free gifts every year of a certain amount, usually within the $10,000 range, there is also a lifetime exclusion amount. In addition to the annual exclusion, you can also give away a certain amount during your lifetime and not incur gift tax.
For gifts completed before December 31, 2012, that amount is $5,120,000.
But after that date, if Congress does nothing, then the amount will shoot down to $1 million. So people who have more than $1 million to give to their kids are doing so now, when they can still give it away tax free.
What many estate planners are suggesting is the use of an irrevocable trust. This trust will hold the cash instead of giving it outright to the kids. It can hold it for a period of time while making small distributions for health, maintenance and education to the kids. When the kids reach a certain age, the trust funds can go outright to the child.
Or, they might stay in a trust for the child for life and move into a trust for the grandchild, eventually.
There is one issue, though. In all of the frenzy this year, people might give away too much and suddenly feel “donor’s remorse.” An irrevocable trust is irrevocable and a gift to the trust will have a very hard time being undone.
There are ways to protect yourself from “donor’s remorse” and a good estate planner will have some ideas. Only an estate planner with sound knowledge of tax laws can help draft the best plan for those with estates over $1 million. Click on our directory below to browse New York estate planning lawyers.