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After changes to tax law, estate planning face more certainty

In a recent post, we mentioned that the recent American Taxpayer Relief Act of 2012 gave the estate planning community a long-awaited dose of permanence regarding tax policy.

Permanence refers mainly to the $5 million estate tax exclusion amount and the passage of permanent portability, which allows surviving spouses to use any portion of their deceased spouse’s unused estate tax exclusion. The Taxpayer Relief Act made these thins permanent, and also included a provision that allows the exclusion amount to be adjusted for inflation annually.

While one could assume that the high exclusion amount will mean that fewer people will be needing estate planning services, it may actually be the case that more estate planning will be needed, since people’s wealth is not being decreased by estate taxes, and there is now more money to be protected.

The use of trusts in estate planning will continue to be an important strategy to protect against creditors and against divorce situations, as well as for wealth transfer. In addition, life insurance will continue to be a useful tool, and it will be important for taxpayers to understand their charitable giving options, particularly as they relate to IRAs.

But permanence in relation to tax policy is exactly as solid as a rock, and changes may still be in store in the future. Because of this, estate planners will still need to think about building in contingencies when they develop plans for their clients. This built-in flexibility is critical for a plan to be able to serve a client in the best possible way while accounting for possible changes.

Source: Life Health Pro, “Estate planning in a post-fiscal cliff world,” David Port, March 26, 2013