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The New Consensus From Heckerling: The Estate Planning World Has Flipped 180 Degrees By ATRA

How fundamentally has the 2012 American Taxpayer Relief Act (ATRA) changed estate planning?  It may have taken a year for this consensus to develop, but the simple answer that was apparent at the recent 48th Annual Heckling Institute on Estate Planning is this:  Profoundly; there is a new paradigm in estate planning.

Paul Lee, the National Managing Director of Bernstein Global Wealth Management, captured the essence of the new consensus in his presentation.  The new law increases the estate tax exemption to $5.34* million per person and $10.68* million for a married couple.  With the increased exemptions and permanence of portability of the deceased spouse unused exclusion (DSUE), Mr. Lee’s major Take-Away Points are:

  • Estate planning is now far more complicated for estates above the $5.34* million threshold
  • Applicable exclusion amount of $5.34* million per person:
    • Should be used as little as possible
    • Taxpayers should consider keeping as much as possible in order to obtain a “step-up” in basis for their assets in order to minimize capital gains taxes
  • Income tax considerations
    • Can now be more important than transfer tax consequences
    • Should be considered in tandem with potential transfer taxes
  • Estate Tax Inclusion
    • Can save more in income taxes
    • Should be forced if the income tax savings are greater than the transfer tax cost
  • State of Residence
    • Will give rise to very different types of estate planning

Updating credit shelter trusts to maximize step-up in basis and provide broad flexibility in tax planning upon death of the first spouse should now be a priority for most married couples.  Widows and widowers who are beneficiaries of a credit shelter trust may need to consider distributing assets out of the trust – assuming the trust allows for this  – or decanting the trust to a more flexible trust if it does not.

Our Recommendation:  All credit shelter trusts and estate plans prepared prior to 2013 should be reviewed.

We welcome your comments or questions.  Contact Phil Rarick or Jay Beskin, Miami trust attorneys, at (305) 556-5209.

*NOTE: In 2016 the estate tax exemption has now increased to $5.45 million per person and $10.9 million for a married couple.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

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