There is no question. The tax laws are bound to change under the new Obama

Rather than speculating on what form those changes may take, I thought it
might be helpful to do a brief recap of current laws, and basic planning points to keep in mind for the year 2009 so I asked our friend Douglas Simon at Duetche Bank for some updates.   Here's what they had to say:
• $3.5 million estate tax exclusion.  You can now protect $3.5 million of your estate from
estate tax if you die in 2009; if you’re married and plan properly, you and your spouse can
protect $7 million from estate tax.  If your will (or revocable trust) was written when the
maximum estate tax exclusion would have been $1 million, you may want to revisit that
document to make sure it still works the way you’d like – after all, if you’re using a formula to
give away “the exclusion amount” to, say, your adult children from your prior marriage, with
the balance to your current spouse, that formula may divert “too much” to your kids.  Also, if
you live in a state that has “decoupled” from the federal system and now has its own estate
tax (e.g., New York, New Jersey and Connecticut), make sure you understand whether your
current estate plan will trigger state estate tax at your death (a likely scenario if you’re using
a formula to give away “the exclusion amount”: in New York, for example, this will trigger at
least $229,200 of estate tax – see the 9/30/08 Tax Topics for more on decoupling).
• $1 million lifetime gift tax exclusion.  Although you can now protect $3.5 million from
estate tax, you still can only give away $1 million, tax-free, while you’re alive.  If you give
away more than that, you’ll trigger gift tax.
• Annual exclusion now $13,000.  You can now give away $13,000 a year to as many
people as you’d like without eroding your $1 million lifetime gift tax exclusion ($26,000 if
you’re married, and your spouse consents).  In addition to these annual exclusion gifts, you
can make direct payments of tuition, medical expenses and health insurance premiums
without eroding your $1 million lifetime gift tax exclusion.
• 529 plans and 5-year “front-loading.”  Don’t forget that if you’re saving for a child or
grandchild’s education, you can put 5 years’ worth of annual exclusion gifts into a 529
account in one year, and get a head start on tax-free growth.  The increased annual
exclusion means that you can put $65,000 into the account this year, or $130,000 if you’re
married and your spouse consents.
• Take advantage of lower values.  Because many stocks have declined in value, they may
be good candidates for gifts – provided that they’re still worth more than you paid for them
(you can’t give away a loss; see the basis adjustment discussion below).   

Thanks to Doug Douglas S. Simon, Director/Client Advisor Deutsche Bank Alex Brown
[email protected]for that update.

Bottom line?  This economic down turn offers you a powerful leverage on gifting and moving assets to your heirs.  If you can still afford to make gifts, you can gift lower valued stocks and have the rebound (when it comes) accrue to your heirs, rather than in your estate.  There are many ways to do this ranging from outright gifts as described above or to GRATs and other irrevocable trusts.

Please feel free to comment or leave a question in the comment area below.  We value your input.

David M. Frees III, Esquire


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David is also a contributor to the Unruh, Turner, Burke and Frees Estate and Wealth Preservation Blog.

David M. Frees, III
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