By Aaron Swimmer, Esq.

On January 1, 2011, wealth transfer taxes changed. For 2011 and 2012, the gift-tax exemption jumps to $5 million from $1 million for individuals and to $10 million from $2 million for couples, which means people can give away that much without paying a penny in taxes. This is a golden window to move as much out of your estate as you can. Even if you can’t or don’t want to make large gifts now, it is probably a good time to review your will, especially if it has one or more trusts.
Another change in the estate rules is called “portability”. Portability allows each partner of a married couple to use the rest of the other’s estate-tax exemption. It especially eases planning when one spouse has a large, indivisible asset.

Let’s say Rob’s assets include a business worth $3.5 million and a $2.5 million individual retirement account. Ana, his wife, has assets of her own worth $1.2 million. Portability means that if Ana died this year, her unused exemption would be reserved for use at Rob’s death. Although portability eases post-death planning and may eliminate the need for trusts, especially for couples with assets well below $10 million, enough wrinkles remain on cost basis that a look by an experienced estate planner would certainly be a good idea.

The new rules provide many reasons for people to consider making large gifts and there may be reason to act swiftly.  While many hope Congress will extend the current regime beyond 2012, at this point the tax breaks are temporary, sunsetting December 31, 2012.

In the next two years, wealthy individuals and couples have an unprecedented opportunity to move a lot of their assets to the next generation. Making the gift now, tax-free, shields future appreciation from taxes. If you are single with assets of $4 million or more, or married with $8 million or more, you should definitely look at making gifts. Below that level, making gifts still could be a smart tax move for people who might get caught if the individual estate exemption drops back to $3.5 million, its 2009 level, or even $1 million, as the 2013 law now stands.

Most people making big financial gifts choose to set up trusts, either to preserve control of the asset, and prevent Jr. from squandering it on race horses and sports cars, or to grow the gift using special techniques. A trust is a type of legal entity that can own and hold title to property held for the benefit of one or more persons. While a properly constructed trust provides advantage to beneficiaries and others involved in the structure, trusts continue to be a legal means of protecting assets belonging to the family. They also benefit members of the family. It is more than a tax saving device, although it is acknowledged that tax saving can be achieved through proper management and allocation of profits made by the trust.

We at Swimmer Law Associates, P.A., are experienced in the topics and issues discussed above. Please feel free to contact our office to review legal strategies to best suit your special circumstances.