The 2010 Tax Reform Act has exempted many families from paying estate taxes—but only if you die in the next two years. The law sets a top estate tax rate of 35 cents for every dollar over $5 million. However, the 2010 law sunsets in 2013, when the exemption is scheduled to be reduced to only $1 million per decedent and the top tax rate increased to 55 percent (and in some cases 60 percent).
With an exemption of only $1 million per family, strategies for eliminating or minimizing estate taxes will be a priority not only for the wealthy but for anyone who has significant assets. With retirement plans, homes and life insurance assets included in the estate, many beneficiaries could end up paying a significant amount of their inheritance in taxes.
At Morris, Hall & Kinghorn, P.L.L.C., our lawyers offer a broad range of planning services to minimize or eliminate estate taxes. With devices such as AB and ABC trusts, irrevocable life insurance trusts (ILITs), family limited partnerships (FLPs), grantor retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs) and charitable remainder trusts (CRTs), you can remove assets from the taxable estate.
Planning for the Portability Rules Change
The new law has a portability feature that allows the exemption to pass from one spouse to the surviving spouse. For example, if the deceased husband didn't use the $5 million exemption, that exemption goes to the wife. You can't rely on this provision for estate tax planning, though, because it is scheduled to go away in two years, and no one knows if the portability feature will continue in 2013. Even if it does continue, there are so many unanswered questions that no one even knows how it would work if it does continue.
Our lawyers craft AB trusts that will pass the estate plan exemption from the deceased spouse to the surviving spouse if the portability feature goes away. We also set up ABC trusts, in which the C trust (marital trust) not only reduces estate taxes but also provides additional protection to the spouse. Assets placed in the martial trust, are protected from creditors, long-term care expenses and devastating tax consequences.
When creating an AB or ABC trust, it's essential to properly set up the distribution formula from the B and C trusts to the surviving spouse. Our attorneys have reviewed hundreds AB and ABC trusts and find that almost all contain errors that could result in a loss of protection for the surviving spouse.
To talk to a lawyer at our firm about how to minimize estate taxes, contact us to arrange a consultation with an experienced lawyer today. We have offices in Phoenix, Tucson, Albuquerque and communities throughout Arizona and New Mexico.
