Estate and Gift Planning

You can't take it with you, but failing to plan for your estate can mean that the government, rather than your heirs, may get the major portion of your hard-earned money. Why? Because the top estate tax rate is a whopping 49% and will gradually phase out entirely by 2010, only to be reinstated to 55% in 2011.

The Economic Growth and Tax Relief Act of 2001 (ACT) broke the link between the unified exemption credit for estate taxes and generation skipping transfer (GST) taxes and gift taxes. The table below shows the exemptions and tax rates for estate and GST taxes and gift taxes through the year 2011.

Estate and GST taxes			Gift taxes
	Death transfer exclusion	Highest rate	Lifetime transfer exclusion	Highest rate
2004	$1.5 million	48%	$1 million	48%
2005	$1.5 million	47%	$1 million	47%
2006	$2 million	46%	$1 million	46%
2007	$2 million	45%	$1 million	45%
2008	$2 million	45%	$1 million	45%
2009	$3.5 million	45%	$1 million	45%
2010	Taxes repealed	Taxes repealed	$1 million	Top individual income tax rate (35%)
2011	$1 million	55%	$1 million	55%

You may be surprised what your estate is worth. Add up the value of all your assets. Don't forget life insurance which may fall into your estate. If your total value exceeds the exclusion, you should look into what a few simple planning techniques can save your family at estate time.

In addition, there are some very effective estate planning ideas that can also cut your current income tax bill.

Current tax law allows you to give away $11,000 per year per recipient. Your spouse may join in the gift even if he or she is not an owner in the transferred asset. This means that you could transfer up to $22,000 per year to each of your heirs. To double the annual exclusion yet again, you may want to include spouses of your children. The person receiving the gift does not need to be related to you. These annual gifts do not reduce your once-in-a-lifetime exclusion.

If you have property which is not needed for your retirement, maybe it is a candidate for transferring during your lifetime. If it is a large income-producer, the future income will be taxed to the new owner and not to you, plus the property will be out of your estate.

You can make unlimited transfers to your spouse either during your lifetime or through your estate. There are no taxes on spousal transfers, regardless of size. But leaving everything to your spouse may not be a good idea, since doing so fails to utilize the lifetime exclusion amount in the estate of the first spouse to die. Planning will allow you to use the exclusion in both estates, and you'll be able to transfer twice as much to your heirs free of estate tax.

With proper planning, certain life insurance proceeds can be kept out of your estate.

What property, if any, should one consider parting with during his or her lifetime?

Estate and gift planning is a very personal process. Each family plan is unique. Effective planning should involve you, your accountant, your attorney, and in many cases, an insurance agent and trust officer.

Please call us for an initial conference at no charge. We will help you assess your need for estate and gift planning. If your financial affairs are simple, the meeting will be short. If you have more complicated matters, the meeting will be longer, but the time will be well spent.

Estate & Gift Planning