February 22, 2013 /24-7PressRelease/
-- The impact of the economy on estate planning
Article provided by Diana, Conti & Tunila, LLP
Visit us at http://www.dctlaw.com/
According to a Federal Reserve study, Americans lost nearly 40 percent of their estates between 2007 and 2010. This includes a median $42,000 loss in the value of American homes, most people's most valuable asset. High unemployment also negatively affected retirement savings plans and lowered credit scores.
The Great Recession impacted families' lifestyles, retirement plans and -- sometimes overlooked -- estate planning needs. For example, increased unemployment has led some people to create their own startups. Such startups, even in their infancy, should prepare estate and succession plans.
For those people who have been able to maintain good income throughout the recession, estate tax laws have been as favorable as they have ever been in recent years. Currently, the federal estate and gift tax exemption is a little over $5 million. That may soon change.
Changes possible in 2013
Because of the oncoming fiscal cliff the future of estate taxes are anything but clear. Part of the $600 billion in tax increases would affect the estate tax; the $5 million federal exemption would lower to $1 million. According to the Tax Policy Center, that would create an estate tax for an additional tens of thousands of Americans. In addition, the maximum rate on estate tax will increase to 55 percent, up from the 35 percent it is currently.
While $1 million in assets is clearly more than the average American, some potential estate tax payers would have very little of their assets ready to be liquidated. Most, or even all, of the federal exemption could be taken up by a primary residence or business. This requires planning on behalf of the individual, as a death could result in an estate tax that would require the house to be sold -- potentially at a loss -- just in order to pay estate taxes and funeral expenses. One potential countermeasure to this can be a life insurance trust set up outside of the estate that would generate enough cash to cover the cost of estate taxes. Those worried about having enough liquid assets to pay an estate tax should consult with an estate planning attorney to discuss their options.
Methods to lower an estate
There are also ways to lower an estate while still giving money to beneficiaries. Estate planning can be a complex process, and a complete discussion of the various trusts and other methods one can use to reduce an estate is beyond the scope of this article. However, three broad methods can be used to reduce an estate:
-Appreciated stock: Gifting appreciate stock lowers the value of the estate and also does not require paying a capital gains tax. However, the beneficiary will not receive a higher cost basis, meaning a beneficiary who sells the stock would ultimately pay more in capital gains tax.
-Give to the annual exemption: In addition to the lifetime exemption, every year a person can give up to $13,000 in a year without it counting towards the gift tax exemption. For people near the federal exemption amount and with numerous beneficiaries this can be an effective method to reduce an estate.
-Consult an attorney about trusts: Many trusts can be used to lower an estate, from credit-shelter trusts to grantor retained annuity trusts. Whether a certain trust is right for an estate is highly dependent upon the circumstances and assets contained within the estate.
Creating an up-to-date and comprehensive estate plan is more essential than ever in an uncertain economy. It is recommended to update an estate plan as circumstances change, and those with no estate plan at all risk higher taxes and the chance beneficiaries will lose out on an inheritance.---
Press release service and press release distribution provided by http://www.24-7pressrelease.com
# # #Read more Press Releases from FL Web Advantage: