Text Box: SIMPLIFY YOUR ESTATE PLAN IF YOUR ASSETS WILL BE AT OR BELOW THE NEW EXEMPTION AMOUNTS Your estate plan may be simplified as necessary to eliminate tax-related provisions that are deemed no longer needed in light of the increased exemption to $1 million. (A thorough analysis of your current and projected assets will be necessary to ensure that they fall below the exemption threshold). Joint lifetime revocable trusts for spouses will become more attractive when the couple’s combined assets fall below the increased exemption amount. PREFERENCE FOR DISCLAIMER TRUSTS IN MARITAL DEDUCTION PLANNING Marital deduction planning for clients whose assets still exceed the exemption threshold of $1 million will likely shift away from the “bypass trust” or “A-B trust” approach, which requires the full funding of the credit shelter trust up to the maximum exemption amount. A more flexible solution will be to have an initial “all to my spouse” bequest, but then provide a contingent credit shelter trust that the surviving spouse could fund by making a post-mortem disclaimer of all or a specific percentage or amount of the outright bequest. With the disclaimer approach, the surviving spouse can choose exactly how much (if any) of the first spouse’s estate to place into the credit shelter trust, in order to utilize some part or all of the first spouse’s exemption. The surviving spouse would be the lifetime beneficiary of this trust. Text Box: Page # Text Box: Estate planning opportunities under the new tax law Text Box: Winter, 2002

 

INCREASED USE OF PARTIAL QTIP TRUSTS FOR SPOUSES

¨         As an alternative to the spousal disclaimer trust, marital deduction planning could involve the creation of a single trust for the surviving spouse’s benefit, again avoiding the traditional “bypass trust” approach.

 

¨          The executor could elect how much of the single trust to qualify as QTIP property for the marital deduction.  This partial QTIP election would take into account both the first spouse’s exemption amount  and the likelihood of total repeal or an increased exemption at the surviving spouse’s death.

 

INCREASED OPPORTUNITES FOR LIFETIME GIVING

¨         Lifetime gifting can be increased to take advantage of the new $11,000 annual gift tax exclusion. 

 

¨         In addition, there is an unlimited exclusion for qualified tuition and medical expense payments, if paid directly to the educational or medical institution.

 

¨         Clients who made large taxable gifts up to the previous maximum exemption amount ($675,000) will now have an additional $325,000 to gift tax-free.

 

 

              (continued on pg. 3)
Text Box: The 2001 EGTRRA law provides for significant increases in the federal estate tax exemption equivalent, to be phased in between 2002 and 2009. Estate tax repeal is due to be effective for one year,2010, unless Congress changes the rules in the meantime. Here are my views on how some traditional estate planning techniques will be affected by the new law.

DISCLAIMER

Martin J. Hagan is licensed to practice law in the Commonwealth of Pennsylvania. This website is intended solely for informational use and is not intended to solicit clients. Likewise, any information contained in or obtained from this web site is for informational purposes only and is not intended to be used as legal advice.

IRS CIRCULAR 230 DISCLAIMER:   Pursuant to Treasury guidelines, any tax advice contained in this website (or any link from it) does not constitute a formal opinion. Accordingly, any tax advice contained in this website (or any link from it) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be asserted by the Internal Revenue Service. You should seek advice based on your particular circumstances from an independent tax advisor.

Send mail to mhagan@haganlaw.net  with questions or comments about this web site.
Copyright © 2007 Martin J. Hagan, One Gateway Center - 8 South; Pittsburgh, PA 15222-1435
Last Updated: 06/29/07