Estate Tax On the Rise, Don’t Panic, Plan

Preparing for the “fiscal cliff” deadline, a widow with $4 million in disposable assets is inquiring how to give away a sizable portion of her fortune as soon as possible. With the tax hikes fast approaching, the Chicago-area millionaire wanted to vacate the money from her accounts by the end of the year so the federal government could not take a giant bite out of it in the form of estate taxes.

With the $5 million exemption on estate taxes and lifetime gifts set to evaporate on Dec. 31, lawyers and financial planners are scrambling across the country to ease client’s concerns. Without a consensus in Congress, the tax rate on estates and lifetime gifts will rise from 35 to 55 percent. Even more of a concern is the amount of money exposed to the tax: Currently the tax rates only apply to estate more than $5 millions. The end of the Bush tax cuts would reduce this exemption to $1 million.

(Read more: 8 Life Stages of Estate Planning: Part 1)

An average American can have 1 or 2, or even 3 million dollars and not be wealthy, which is why many financial planners believe that the estate tax and the lifetime gift exemption will be reset closer to $3 million. And since spouses have the ability to give away an amount up to the exemption without incurring taxes, the exemption for a married couple would be $6 million.

“It’s a relatively small group of people who really need to worry now,” said Michael S. Beriss, a former tax attorney who is now a financial planner with Ameriprise. To take full advantage of the current $5 million exemption, a married couple would have to have a spare $10 million in the bank. “If you give away $1 million today, you’re not using your $5 million exemption,” he said.

(Read more: 8 Life Stages of Estate Planning: Part 2)

An older investor with investable assets and a home worth more than $3 million should not panic, rather, do some planning. Consider what you are trying to accomplish, and the legacy you would like to leave. The legacy you envision will determine the type of tax relief you choose.

If you want to send your grandchildren to college, a 529 college fund is the best solution; if you want to support your a cause that is close to your heart, a charitable contribution may be the best way to protect your money.Trusts may be the smartest answer if your main objective is to make your kids’ lives easier financially without leaving them with tax headaches themselves.

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However, a money-minded taxpayer may simply desire to pay as little a percentage in tax possible, to preserve their cash legacy and keep the government’s hand off it. For these savers, even the worst case scenario – a return to the 55 percent tax on any amount greater than $1 million – is a salvageable situation. Estate tax, said Beriss, “is probably one of the holiest areas in tax code, and I don’t mean it in the religious sense.”

Read more:
http://finance.yahoo.com/news/estate-tax-going-people-arent-193631304.html

Marc H. Wander is a partner of the Bloomfield Hills law firm of Witzke, Berry, Carter &Wander, PLLC. Marc has been licensed to practice law in Michigan since 1992. Marc’s practice is devoted to estate planning and business succession planning.  Marc is a member of the Probate and Estate Planning Section of the State Bar of Michigan and is a prior Chairperson of the Oakland County Bar Association Tax Committee. He is a frequent continuing education speaker to insurance agents, financial advisors, CPA’s and financial industry organizations. He has also been heard on WJR Radio. Follow Marc on Twitter @MarcWander