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Bush-era tax cuts expiration prompts estate plan updates

It's been a busy time for financial advisors and estate attorneys lately, and there is a very good reason for that: Dec. 31 marks the expiration of tax cuts that have played a massive role in the taxation of estates and gifts for several years. As we have previously mentioned, Michigan residents with $1 million or more in assets need to be aware of how these changes affect estate planning and eventual estate administration going forward.

If Congress does not act to make any changes before the end of the year, these estate tax changes are expected to affect a great number of estates quite severely. Those who have estates valued at $1 million or more would be very wise to visit their estate planners and deal with these issues immediately as estate plans can be crafted in a way that minimizes taxes as much as possible.

The most critical issue is that federal gift and estate tax exemptions per individual are scheduled to massively decrease from $5.12 million to $1 million per individual. Also, the top marginal tax rates will increase sharply from 35 percent to 55 percent.

That's not the end of the story. A number of different proposals have been made to remove or reduce various planning techniques. These include the possible elimination of benefits related to a grantor trust; a 10-year minimum term on grantor retained annuity trusts, and reduced availability of such opportunities as valuation discounts.

Ultimately, those who will be affected need to be fully aware of their options for mitigating the effects of these changes. This is a good time for everyone to take a second look at their estate plans and ensure that everything is set up with the pending tax changes in mind. A complete understanding of how to handle the new rules can save Michigan residents a lot of money.

Source: Forbes.com, "Year-End Estate Tax Considerations -- TIME IS RUNNING OUT," Rob Clarfeld, Oct. 23, 2012

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