Houston Estate Planning Law Blog

THE FISCAL CLIFF AND ITS IMPACT ON ESTATE PLANNING FOR 2013

For a little over a month now, the nation has been watching in trepidation as the fiscal cliff looms ever closer, but for some people here in Texas, and perhaps other states, they could be wondering what the concern is really all about.

During George W. Bush’s presidency, we watched as estate tax rates dropped to a mere 35 percent as the amount of money allowed for gift tax exemptions rose to a staggering $5.12 million. But come January 1 that could all change if Congress can’t come to a consensus over what the new limits will be in 2013.

If Congress doesn’t reach a decision, gift tax exemptions will roll back to $1 million while the estate tax rate will rise to 55 percent. And although this has relatively no affect on the average American, those who have accumulated large enough estates are becoming increasingly worried that their estate planning measures may need to be considerably altered so as to shelter their estates from future changes.

Many financial experts point out that it’s not too late to change your estate plans; in fact, if you are among the few whose estate exceeds $1 million, you are highly encouraged to do so before the start of the New Year. By restructuring your estates into trusts, insurance and other techniques, you may be able to prevent your beneficiaries from seeing a considerable loss in their inheritance when it comes time to collect. Some have even suggested that giving assets as gifts now instead of at the time of your death could greatly reduce the amount of gift tax that is paid out this year, which could provide more asset protection in the long run.

Some critics have argued that there is the likelihood that Congress will not allow the fiscal cliff to occur, pointing out that if any of them were even remotely successful in their business careers then they would find themselves in the $1 million to $5.12 million range. But even if these critics are wrong, it’s always better to plan for the worst and hope for the best in situations such as this.

Source: The Bradenton Herald, “Fiscal cliff causes estate planning conundrum,” Tom Breiter, Dec. 11, 2012

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HOW YOUR GENEROSITY NOW MAY HURT YOU FINANCIALLY IN THE LONG RUN

With Christmas just around the corner, many people in Texas and across the nation are preparing for the shopping season with lists in hand and generosity in their hearts. Despite the troubling economy and even worse-off wallets, the general consensus this year is to try to spread a little more holiday cheer than last year. For many grandparents, this could even mean spending more than they may be able to afford.

But it’s within our nature to want to spoil our family members; they give so much to us, we want to return the favor. But many financial planners say this could be a huge mistake for grandparents whose desire to give gifts now could greatly reduce the amount of money they leave in their wills in the future.

“It’s a delicate balance between wanting to help your family and making sure that down the road you’re not a burden,” says one gerontologist who directs the MetLife Mature Market Institute. She suggests instead that elderly people use gifts as teaching tools that teach their grandchildren about the importance of financial planning at an early age. She also suggests leaving tax-free gifts after they die to make sure that they don’t run out of money now.

So how do you help your grandchildren without wrecking your own financial future? Many experts agree that scaling back on the amount of money you want to spend can make all the world of difference in the future. Though you might want to put away $10,000 a year towards your grandchild’s trust fund, you may only be able to afford $5,000 a year. As mentioned above, using gifts as teaching moments are also a good way to feel like you’re being generous, even if you may only be giving a small amount. A financial planner in Connecticut suggested that one of his clients give his grandchildren appreciated stocks as a gift. That way, he gets the stocks out of his estate meaning it may be subject to less tax when he dies.

It’s never too late to start planning for your future. With estate planning you can make sure that you’re helping yourself now, while also helping your family in the future.

Source: The Wallstreet Journal Market Watch, “The smart way to give to your grandkids,” Kelly Greene, Nov. 13, 2012

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CHANGE IN EXEMPTION RATE COULD MEAN LESS MONEY FOR HEIRS

Starting January 1 the federal tax exemption on estates and gifts is set to roll back from $5.21 million to $1 million which could present a problem for heirs if people don’t take advantage of the exemption now rather than at the time of their death.

Many people have argued that estate attorneys and other financial professionals have sounded the alarm before when estate and gift taxes were up for review, but experts are saying this time the alarm should be duly noted. Experts warn that in today’s political and economic climate Congress is less likely to keep the exemption rate as high as it is for very much longer.

One reason some experts are suggesting that people claim their estates now is that if an individual waits too long to begin the process, there is a good chance that they won’t be able to complete the paperwork before the year’s end. In some circumstances, not filing paperwork before the deadline may increase the amount of tax that they pay on their estate thus reducing the amount they give to their heirs.

Because estate planning involves a number of interlocking parts that all require some degree of time and attention, timing is crucial in most cases. Giving sizable gifts under the current limits in order to reduce estate size may avoid a potential tax hit at a person’s time of death. Estate planning attorneys point out that this will only be possible if people give ample time for the planning process, pointing out that it is difficult to finish the process in any time less than a month.

A managing director of one of the nation’s largest accounting firms summed it up by saying, “My guess is that these are the best rules you’re going to get in your lifetime.”

Source: The Wall Street Journal, “No playing chicken with estate tax deadline,” Charles Passy, Oct. 2, 2012

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