State vs. Federal Estate Tax Exemptions
Although the Federal Estate Tax Exemption for 2016 is 5,450,000, many states have retained lowerEstate Tax Exemptions. For example, the Connecticut Exemption is $2,000,000 and may result in a Connecticut Estate Tax of $248,400 on the death of the first spouse to die unless provision is made in your documents for the different Federal and State Exemption levels. In addition, the present Federal Budget calls for a reduction of the Federal Estate Tax Exemption in 2018 to 1,000,000 with a tax of 45% over the Exemption. We are in a "wait and see" mode.
Due to the revisions in the Estate Tax law, it is important to review your documents with respect to all tax and non-tax issues, such as protection of spouse and children. For example, if there are beneficiaries of your Family Trust other than your spouse, it is important that we discuss the maximum share you want distributed to your spouse and children since the new laws will automatically increase the children’s share and reduce your spouse’s share unless you provide otherwise.
Trusts for your children should be reviewed to determine whether the age distributions are still appropriate for them. If you have created lifetime Trusts for your children, it is imperative that we meet to discuss Generation Skipping revisions which are required under the new Laws and Regulations.
As IRA and Qualified Plan Accounts have grown to be a larger proportion of total assets, specific planning has become necessary to create multi-generational withdrawal techniques in order to avoid the potential of onerous Tax rates. It is important that we review the beneficiaries of your IRA or Qualified Plan to determine whether a Q-Tip or a Credit Shelter Trust would be helpful to reduce tax and better conform your beneficiary designation to your family’s personal circumstances.
Asset Protection Structures have proven very successful to protect your assets and your children’s assets from creditors.
In addition, Charitable Lead Annuity Trusts are successful in coordinating your non-tax charitable with substantial estate tax savings.
Several new Estate Tax saving mechanisms such as Sales to Intentionally Defective Grantor Trusts, Qualified Personal Residence Trusts, Grantor Retained Annuity Trusts for real estate and publicly held securities, Limited Liability Companies and Family Limited Partnerships have also proven very successful in reducing your Federal Estate Tax on a long-term basis.
It is also important to review your Durable Powers of Attorney, Health Care Powers and Living Wills to make certain that they have been updated to the new applicable State Laws and HIPPA rules.