We Care

Federal estate tax exemption shifts planning focus for attorneys

Those who have been following developments in the estate planning world know that January was a big month for attorneys and other estate planning experts. The federal estate tax exemption amount, which had previously been temporarily set at $5 million, was made permanent. With adjustment for inflation, the exemption amount is currently at $5.25 million. And that is permanent.

Other changes included making permanent what is known as estate tax “portability,” meaning couples have a combined estate tax exemption amounting to $10.5 million, as well as an increase in the income tax rate to over 43 percent for some Americans. With these changes in place, much of the focus on avoiding estate tax has shifted to a focus on avoiding income tax.

In practice this means a shift in strategy and in the tools used to achieve financial goals, including making more use of things like intra-family loans, increasing investing in retirement accounts, and decreasing use of certain types of trusts such as qualified personal residence trusts and credit shelter trusts.

The number of Americans that have assets that exceed the current estate tax exemption amount is relatively small. According to the Tax Policy Center, the number is around 3,780, and at most 2,000 of these have $10 million or more.

That being said, it is still true that state estate tax exemption limits will still leave room for work for many attorneys. In Georgia, there is no estate tax on the estates of those who passed away after January 1, 2005.  

Source: Forbes, “The Demise of Estate Tax Planning Sends Lawyers Scrambling For New Work,” Howard Gleckman, September 10, 2013.