ESTATE ADMINISTRATION CHANGES AFTER FINANCIAL CLIFF

As the American public waited on the plunge of the fiscal cliff, financial advisers found themselves in an even less enviable position. Many worried that their clients would be unable to use previously enacted tax exemptions as part of their comprehensive estate administration plans. Luckily, the nation did not fall off the financial marketplace, and financial advisers have great news for their clients: The $5 million estate tax exemption stands, with some additional benefits.

Not only will the $5 million estate tax exemption become permanent, but the provision is now inflation-adjusted and portable. That means that a widow or widower of a deceased spouse can use the estate tax exemption of the spouse who dies first, according to financial gurus.

In other words, most people do not need to fear the estate tax anymore. Outside of the ultra-rich set, most families and business owners will be able to pass down their assets without fear of exorbitant taxation, a boon for many American entrepreneurs. Estate planning changed forever with the American Tax Relief Act of 2012.

Despite these benefits, high-earning Americans may face more demanding tax rates than previously anticipated. Even though the estate tax has effectively been negated for most U.S. residents, affluent taxpayers could face increases that drive their combined tax rate up to 50 percent or higher. As a result, those clients will have to receive additional education about estate planning, and financial advisers will be required to brush up on the new tax provisions. Even simple income tax changes could modify the approach to estate planning, according to financial experts.

The fiscal cliff had another set of unanticipated results: More affluent benefactors formed and made gifts to the complicated irrevocable trust. Many of these trusts were set up as grantor trusts, in which the person who establishes the trust remains accountable for earnings taxes. Financial advisers anticipate a flood of review requests for these trusts, whose administration may have changed since the new laws were handed down.

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Written by Luis E. Barreto

Luis E. Barreto

Luis is a probate and guardianship litigator with over 23 years of experience in the field. Determination of heirs, will contests, breaches of fiduciary duty, removal of personal representatives, guardians and trustees are just some of the types of litigation he addresses. In addition, he administers non-contested estates and guardianships.