Planning Your Estate in the wake of the Tax Act of 2012

tax-breakAs Congress came to a consensus last night, and the American Taxpayer Relief Act of 2012 will be signed into law today, the time has come for us to determine how these laws will affect us individually. I would like to take this opportunity to offer you a few tips regarding the new law as you review your own estate plan.

The Estate Tax: While the taxable estate will remain at $5,120,000 with an annual inflation adjustment, experts in the area largely expect that a lower taxable estate is on the horizon. It has been predicted that the estate tax could drop down to a taxable estate as low as $1 million and could likely settle near $2 million. Further, the taxable amount increased from 35% to 40% of the estate.

The best estate plan should be to proceed with caution, and continue to include a spousal disclaimer trust allowing a surviving spouse to take advantage of the potential estate tax exemption in both estates any time we have a taxable estate over $2 million. Some may choose to purchase some life insurance policies, which pass outside of the probate estate, to have assets readily available to offset any potential estate tax liability.

It is also important when reviewing your Estate Plan that you have not only sheltered your children’s inheritance from a potential estate tax, but also from their own creditors and tax issues. Money left to adult children becomes attachable by their own creditors and judgements. A Trust for an adult child can allow the child to reap the benefit of the inheritance without the possibility of creditor attachments. It also allows you to select the next generation you wish to inherit the remaining assets at the beneficiary’s death.

Living Trusts: Many people set up living trusts instead of a Will to avoid probate and to prevent assets from becoming public. This only works effectively if all assets are owned in the name of the Trust, and not the name of the Donee or Lifetime Beneficiary. Because these trusts can become less effective as laws change over time, it is best to have these trusts reviewed periodically to see if they need to be updated under the new system.

Gift Tax: As many incorporate a lifetime gifting plan in their long term planning, it is worth noting that you should be able to continue on with that plan. The annual exclusion has been increased to $14,000.00 per year per donee.

Income Tax: Much of the Tax Act focused on income tax increases and, while those making over $400,000.00 a year will face the greatest tax increase, rule changes regarding personal exemptions will have the taxpayer making over $250,000.00 ($300,000.00 married) seeing income tax increases as well. If you are close to these income levels, I encourage you to meet with a financial planner early in 2013 regarding these increases.

Business Power of Attorney and Health Care Power of Attorney: When reviewing your estate plan, always make sure you have a current valid set of powers of attorney. These documents are fundamental in the continuation of your financial plan should disaster strike.

The entire Tax Bill may be seen on the Library of Congress website at If you have any questions regarding your own estate plan, please do not hesitate to contact me.

I hope you have a blessed New Year.


About elderlawalabama

The Brannon Law Firm, LLC is a client-centered, solution based firm offering compassionate and comprehensive elder law, estate planning and public benefits planning. We are committed to providing quality service to our clients at reasonable prices.
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