Now is the Time for All Good Estate Planners to Come to the Aid of Their Clients!: Estate Planning Opportunities in 2012

 By Ashley Alderman

On January 25, 2012, Scot Kirkpatrick and I spoke about how clients can utilize the current gift, estate, and generation-skipping transfer tax laws and $5.12 million exclusion amount in 2012 to their advantage, particularly given the increasing likelihood that as of January 1, 2013, we will again be back to a $1 million gift and estate tax exemption with a 55% tax rate and a 5% surcharge on estates in excess of $10 million.  After reviewing the current state of the law, we also discussed the lingering questions surrounding the estate tax law, primarily dealing with the concept of portability of the unused spousal exclusion amount and the potential for “claw back” if an individual makes gifts in 2012 utilizing the current $5.12 million exclusion amount, but then the individual dies in a year when the exclusion amount is less than the amount the individual already gave away.  There is the potential that when the individual dies, his estate will owe estate taxes on those prior gifts.  Despite the uncertainty and this claw back risk, maximizing use of the $5.12 million exclusion amount in 2012 is still a very attractive option for some clients.  One reason is that many practitioners believe that some form of administrative or legislative relief would be provided.  Although there is not unanimity among all commentators, another reason is that even if the claw back applies, the total amount of taxes paid by the client and his estate would be lower if the gifted assets appreciate in value because the assets, along with any appreciation on such assets, are removed from the gross estate.

Following the explanation of the current law, and the uncertainties in the current law, we discussed multiple estate planning opportunities for clients in 2012, in particular those to utilize their $5.12 million exclusion amounts.  Some of the strategies discussed include:

1. Outright gifts;
2. Decanting assets in existing trusts into new trusts;
3. Grantor Retained Annuity Trusts;
4. Business Restructuring, including the formation of Family Limited Partnerships and “Estate Freezes,” including gifts and sales to intentionally defective grantor trusts;
5. Captive Insurance Companies;
6. Forgiveness or refinancing of outstanding promissory notes or loans;
7. Additional gifts to Irrevocable Life Insurance Trusts to facilitate the purchase of additional life insurance policies or increased death benefit on existing policies;
8. Qualified Personal Residence Trusts; and
9. Charitable Lead Annuity Trusts.

As we repeatedly emphasized to those in attendance, this is the year to “use it or lose it!”   Many of these strategies need to be implemented in the beginning of the year in order to be completed by the end of 2012.  If you or a client may benefit from some of these estate planning opportunities, we will be glad to discuss them in more detail with you.

Explore posts in the same categories: Estate Planning, Presentations, Tax

Tags: Business Restructuring, Charitable Lead Annuity Trusts, decanting assets, estate tax, generation-skipping transfer tax laws, Gift and Estate Tax Exemptions, gift tax

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