Planning for Reduction of Estate Tax Exemptions: Strategies for Clients Who Do Not or Soon Will Not Have Exemptions

Description

Under current tax law, individuals can leave their heirs up to $11.58 million without federal estate tax liability. However, the exemption is scheduled to decrease, and legislation could accelerate the decrease in exemptions. Even if the increased exemptions are ultimately extended, many clients will use large portions of their exemptions in anticipation of a change, leaving them with little or no remaining exemption going forward. Counsel must carefully craft planning for those above the exemption threshold amount in light of the potential reduction in estate tax exemptions.

Many planning strategies may become more or less effective without the availability of gift and/or GST exemptions to protect gifts from tax. By understanding the implications of a planning environment where clients have little or no available exemption remaining, advisers will be better prepared to guide clients through wealth transfer tax laws changes.

Trusts and estates counsel must revisit clients' estate plans to achieve their goals. Advisers can accomplish this by various methods, such as giving annually, using the unlimited marital deduction, charitable or bequests, and other options. The goal is to reduce the value of the estate to minimize or avoid estate taxes. However, lifetime gifts incur a lower effective tax rate than transfers at death and thus are more tax-efficient than transfers at death.

Many estate planning strategies for high net worth clients seek further tax savings by reducing the gift amount for tax purposes. One such strategy that may be useful for older clients is the "net, net gift." In addition, the use of GRATs, IDGTs, or other trusts can be valuable tools that may produce substantial estate tax savings.

Listen as Megan L. Jones, Senior Associate at Pillsbury Winthrop Shaw Pittman, discusses key considerations for clients who do not or soon will not have available exemptions, implications of "net, net gifts," and effective use of the GRATs, IDGTs, and other strategies to achieve tax savings amid anticipated changes in tax laws.