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Will and Estate Planning Changes in Response to Current Tax Developments

As set forth in the above article entitled, “Current Tax Developments in 2013,” the Federal Estate and Gift Tax Exemption will remain at $5,000,000.00 for the foreseeable future, the same being indexed annually. The exemption for 2013 is $5,250,000.00 and for a husband and wife it is $5,250,000.00 each. In prior years when the exemption amount was much lower, many couples drafted their Wills in such a way as to ensure that they could take advantage of both exemption amounts. With the exemption increasing to such a high level and with it being likely to stay at that level for the foreseeable future, many couples no longer need the tax planning features of their previous wills. For many couples that no longer have potentially taxable estates, simplifying their Wills can have many practical advantages.

In estate planning, as with most things in life, all things being equal, simpler is better. Reducing unneeded complexity in Wills not only allows the client to better understand the Wills or other estate planning, but often eliminates children or other individuals that were added to the Wills only to ensure that the estate tax exemptions were maintained. Revising the Wills to eliminate unneeded Federal Estate Tax Planning by simply providing that each spouse inherits everything from the other or by simply providing a usufruct to each other may simplify the situation and lead to less potential conflict.

With the exemption being $5,250,000.00 for both estate and gift tax purposes, there will continue to be substantial gifting alternatives available for individuals with larger estates to use up the $5,000,000.00 exemption through gifting. As set forth above, any individual is able to gift $14,000.00 in cash or assets in 2013, the amount is indexed annually, to as many individuals as they choose without the requirement for the filing of any gift tax returns. If the individual exceeds $14,000.00 to any one individual, the donor is required to file a federal gift tax return using up that portion of his or her $5,250,000.00 gift tax exemption by the amount of the gift that exceeds $14,000.00. Of course, the donor is free to use up the entire $5,250,000.00 in one year free of any gift tax. When that donor dies, he or she would have no remaining estate tax exemption except for the additional indexed portion. Proper planning and valuation are always crucial in such large gifts.

While we never know for sure what the government may do in the future, it appears the Federal Estate and Gift Tax Exemption will remain at its current level for the foreseeable future and everyone should review their Wills or other estate planning documents to ensure they are making the most out of their Wills or other estate planning documents. If you have any questions about this article please contact Steve Hayes at, she@chehardy.com