There has been a tremendous buzz about the recent changes to the estate tax changes for 2011 and 2012. 

The simple version is that if you die in 2011 or 2012 a total of $5 million in estate value is exempt from federal estate taxes. This has very little client impact except for those dealing with a terminal illness.

More  impactful is the change that currently allows for $5 million of assets to be transferred out of an individual’s estate without any federal gift tax. The most that could be transferred prior to 2011 was $1 million. If you think the estate tax exemption will eventually settle at less than $5 million or believe the gift tax exemption will drop back to $1 million, then now is the time to make some moves.

If you think these levels will remain (the law currently has the federal estate tax exemption dropping to $1 million in 2013) then there is no rush to make changes.

In most of our meetings with clients, the real conversations go like this: “I know it is a good time to transfer some money but I’m not sure how much I can really part with. There are too many questions marks out there in the world. I’m concerned that if I need more money, I’ve given it away….” To us the answer is based upon the following: How much income do you need today? Do you have a chronic illness plan in case you get sick? How much liquid/emergency money do you feel comfortable with? Whatever that total number is – let’s double it for safety. Whatever is left could be considered for transfer today.

We also feel that individuals with more than $4 million and couples with more than $8 million are those who should consider making moves. This is due to the fact that if the exemption is lowered, it would most likely be near the $3.5 million range…

If you are a candidate to move assets, we are convinced that using this money as an “engine” to fund a life insurance policy in an irrevocable trust is the best tax efficient leverage that exists. We can show how this can work.


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