Our readers may not be aware it, but more changes may be coming for the estate planning world, even after the “fiscal cliff” changes. The recent changes, as we’ve mentioned before, involved some rather positive changes in the arena of estate tax and gift tax. Now, there is a lifetime exemption amount of $5 million, adjusted annually for inflation.
The exemption is applicable for lifetime gifts, estate and generation skipping transfers. Other positive changes took place as well, including the “portability” of the exemption amount. Those positive changes, though, may be offset by some not so positive changes in the near future. This is because the Obama Administration, over the last several years, has suggested the elimination or curbing of some of the most valuable estate planning techniques available.
One estate planning technique that could be affected is the use of intentionally defective grantor trusts. With these, the grantor-the person that sets up the trust-pays income tax on trust earnings, which allows them to give to the trust tax-free and lower the value of their estate, decreasing their estate tax burden.
Another trust technique that could be affected is the short term grantor retained annuity trust. Further changes could include a 1o-year minimum term, which could possibly be coupled with a required gift element.
Dynasty trusts and discounted entities may also be affected by less availability of valuation discounts and the possibility of limitations on generation-skipping transfer exempt dynasty trusts.
These changes will certainly make it necessary for people to keep in touch with their estate planning attorneys, and to make sure they work with somebody who is aware of the ongoing changes.
Source: Forbes, “Estate Planning Moves BEFORE Sequestration Is Resolved,” Rob Clarfeld, March 8, 2013