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Estate Tax Law Changes Are on the Horizon: Part Two

In one of our last posts, we mentioned that the estate law tax could be changing at the end of the year. Depending on the actions or inactions of Congress, it will either revert to the previous exemption amounts of a $1 million with a 55 percent tax rate for any amount above that, or it will change to some unknown amount.

Those who wish to pass their inheritance to their heirs are being faced with a selection of choices, none of which is a certainty given the current tax laws and the likelihood of changes before the end of the year. With that in mind, tax and legal professionals have offered a few options from which to choose, keeping in mind that each family and estate situation is unique.

Option #1: A person of significant wealth could give the maximum tax-free amount before the end of the year. This would mean a one-time gift of $5.12 million for an individual or twice that for a married couple. But would it be wise to give more than $10 million to a son or daughter who is 19 years old and potentially irresponsible? Or would it be wise to give $5.12 million to a child with a spouse that you don't trust? This could be a difficult choice.

Option #2: Arrange for an executor to gift significant assets to the charities of your choice. This option would reduce the amount of inheritance your children or other heirs would receive.

Option #3: Give a large number of $13,000 gifts (or twice that if married) to a wide range of people. This would not impact your lifetime exemption, but would once again decrease the amount your heirs would receive.

Option #4: Create an Irrevocable Life Insurance Trust or ILIT. If you select this method you would take out a life insurance policy on yourself and the proceeds would be exempt from income and estate taxes.

Option #5: All of the above. You could pick and choose from the options above, or some other combination.

When tax laws are subject to change, it is a wise idea to keep your estate plan, wills and other legal matters fully up-to-date. Not making any decision is a way of making a decision that you may not like.

Source: NorthJersey.com, "Neumann: Some looming changes in the estate tax law," Randy Neumann, Aug. 17, 2012

At our Dallas law firm we represent individuals and businesses solve their tax issues related to tax law changes such as those mentioned in this posting.

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