One of the big stories in estate planning circles in 2010 was the fact that the estate tax was repealed for the one year, but it was supposed to return in 2011 with only a $1 million tax exemption. Instead, congress in the eleventh hour of 2010 expanded the exemption to $5 million, and expanded it an additional $5 million for a spouse for a total of $10 million exemption for married couples. On top of that, they also expanded the gift tax limits from $1 million to $5 million. However, on December 31, 2013, these extensions also expire, and are set to return tot he $1 million limits previously set. Those with estates below $5 million but greater than $1 million will want to consider gifting a significant part of their estate to a trust while the gift tax limit is at its current high level.

There are a number of ways of doing this. A common approach has always been to give away the annual gift limit, currently $13,000 per person per year. However, with a large exemption available, wealthy individuals should also consider making lump sum gifts to a trust, either as an outright gift, or into an irrevocable life insurance trust or ILIT. Though use of a single premium life insurance policy, an individual can make a one-time gift to a trust, and leverage the ultimate death benefit, which will be tax free, regardless of what the estate tax exemption is when they die, and can also be made to be generation skipping transfer tax free, thereby creating a dynasty trust that will last multiple generations without ever being subject to estate or GST tax.

If you would like more information on this rare opportunity of an expanded gift tax exemption, please feel free to contact our office for an appointment.

Tags: Advance Planning, Estate Planning, estate tax, Gift Tax