How does the fiscal cliff impact your estate planning decisions?
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How does the fiscal cliff impact your estate planning decisions?

The fiscal cliff is coming. What is it and how does it impact your estate planning decisions? The current estate tax table starts at 30% and quickly graduates to 45% of your total taxable estate. Again, this is what the law is today, and with all the talk lately of the need for money by the federal government, and thus far the lack of any legislative attention to the expiring tax law and the impending fiscal cliff, coupled with the uncertainty of the upcoming election, it appears that little action will be taken prior to January 2013. Therefore, the estate tax transfer redemption could fall to $1 million in 2013 with the highest estate and gift tax rate at 55 percent.

Scenario: $5,000,000 Estate - $1,000,000

Exemption Without Planning: If the legislators decide to let the estate tax law expire, resulting in the estate tax exemption amount pulling back to the $1,000,000 level, that same $5,000,000 estate, without any planning, would now owe approximately $1,800,000 in taxes.

With Revocable Trust Planning: Planning with trusts will still help reduce estate taxes in the same manner described above but will not eliminate the federal estate taxes. The amount of tax due would still be approximately $675,000, but you will save approximately $1,125,000 in taxes. (This is an approximate tax liability as there are no published tax tables available for 2013 as of yet.)

With Irrevocable Trust Planning: By setting up two irrevocable Medicaid Trusts you can obtain the same probate avoidance and estate tax benefits as with the revocable trusts while at the same time protecting the assets in these trusts from the costs of long term care. The amount of tax due would still be approximately $675,000. (This is an approximate tax liability as there are no published tax tables available for 2013 as of yet.)

 

 

Prepared by: Todd E, Lutsky, Esq. LLM Cushing & Dolan, P.C. Attorneys At Law Totten Pond Road Office Park 375 Totten Pond Road, Suite 200 Waltham, MA 02451

Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group, Cushing & Dolan, WRKO and The Securities America Companies are unaffiliated. Representatives of Securities America Inc. do not provide legal or tax advice. The scenarios provided are for illustrative purposes only and not intended to represent client experiences of Armstrong Advisory Group or the Securities America companies. Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. October 2012