By Hinkle, Fingles & Prior, Attorneys at Law

Estate and tax planning is not only for the wealthy. However, with the recent changes to the Federal estate tax it’s easy to think that way. In reality, your estate is usually worth more than you think it is. Families usually forget about things like the value of their home, 401(k) or life insurance. These items alone can be enough to trigger federal estate tax considerations. In addition some states, like New Jersey, impose an estate tax.

  • As of January 2013, estates less than $5 million dollars are excluded from federal estate tax. As a result, most individuals did not need to engage in tax planning to limit the amount paid in federal estate taxes. However, many states also impose an estate tax. For instance, New Jersey only excludes estates less than $675,000 from its estate tax.

    The $5 million federal exclusion that went into effect in January was to settle a seemingly ever-changing tax code that made it challenging for families to minimize the impact of the estate tax. Despite this fact, there now appear to be some rumblings in Washington which may result in further changes. Some of the changes mentioned include, among other things, that the $5 million exclusion would be reduced to $3.5 million;

  • the gift tax would be reduced to $1 million;
  • the Generation Skipping Tax (taxes on gifts to grandchildren, for instance) would be reduced to $1 million;
  • the inflation index would be eliminated, and;
  • the highest tax rate would rise from 40% to 45%.

If some or all of these changes were to go into effect it could result in families having to pay federal estate taxes that they had not anticipated. What does this mean for our clients? Again, regardless of your income or the size of your estate, these changes in Washington have implications.

First, it means married couples should consider credit shelter trusts to reduce estate tax liability by preserving both spouses’ estate tax exclusion. Click here to learn more about credit shelter trusts;

Second, the use of certain types of trusts to remove life insurance benefits from your estate may be more important than ever;

Third, it might be worthwhile to consider aggressive gift giving strategies so that your estate is directed where you want it to go, and not subject to higher tax rates;

Fourth, it is wise to consider making gifts in your Will to charitable organizations such as non-profit organizations providing disability-related services and supports to your child as a way of minimizing estate taxes while helping to ensure the longevity of the organizations serving your child; and,

Fifth, it is imperative that you review your estate plan every five to ten years, or when there are changes to your assets or family, as well as anytime the government makes changes to the tax code.

The point is, no one can predict what will happen in Washington or elsewhere. However, most tax law changes also provide opportunities to families to plan for their future and that of their children. Keep an eye out for future editions of our newsletter. We will be sure to discuss whatever changes may occur.

Published on Aug 12th, 2013. © Copyright 2013 Hinkle, Fingles & Prior, P.C., Attorneys at Law. All rights reserved.
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Hinkle, Fingles, & Prior, P.C., Attorneys at Law is a multi-state law practice with offices in Lawrenceville, Cherry Hill, Florham Park, and Paramus, New Jersey, and Plymouth Meeting and Bala Cynwyd, Pennsylvania. The firm's partners and associates lecture and write frequently on topics of elder law, estate planning, special needs trusts, guardianship, special education, health care insurance & Medicaid, and accessing adult services, and are available to speak to groups in New Jersey and Pennsylvania at no charge. For more information, visit http://www.hinkle1.com/ or call (609) 896-4200, or (215) 860-2100.