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Still A Need For Estate and Gift Planning

In early January most estate planners welcomed a “permanent” estate and gift tax law put in place as part of the American Taxpayer Relief Act. Finally, a tax policy was put into place that we could use and plan with a degree of certainty that’s been missing for years.

Of course many of our wealthy clients who had not engaged in any 2012 yearend tax planning, felt a degree of satisfaction that they had waited on the sidelines.

But after decades of tax politics winning out over tax policy, had we really arrived at a state of estate and gift tax nirvana. Unfortunately, as we were winding down tax season President Obama on April 10th released his 2014 federal budget proposal that included many tax changes, including a “new permanent” estate tax regime.

Thus, our current permanent estate and gift tax regime put in place January would end after 2017 if the President’s plan gets passed. Starting in 2018 the estate tax exemption would fall from an inflation adjusted $5,000,000 to 3,500,000. The gift tax system would once again be decoupled from the estate tax and the gift tax exempt would once again be reduced to only $1,000,000. The top gift and estate tax rate would increase to 45% and there would be no estate or gift tax inflation adjustment.

As the President has proposed in earlier budget proposals his current budget proposal would effectively eliminate Grantor Retained Annuity Trusts (“GRATS”) as we know them.

So what does this mean to all of our wealthy clients (estates over $10,000,000) who pushed off any significant planning in 2012. The ability to do effective planning is as good today as its ever going to be. As the saying goes there are only two certainties in life are death and taxes. With either the existing tax laws or with the President’s budget proposals without current effective estate and gift tax planning with death our wealthy clients estate will pay a significant and quite possibly unnecessary tax.

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