For many people, shielding their heirs from estate taxes is a primary concern when structuring an estate plan.
In January of this year, Congress passed the American Taxpayer Relief Act, which permanently set the exclusion amount for federal estate taxes at $5 million, adjusted for inflation. One other important change in the Act is “portability.” This means that when one spouse dies, the remaining spouse can apply the remaining amount of the estate tax exemption to her own estate.
Because the estate tax exclusion amount is so high, only the particularly wealthy are likely to have to worry about saving estate taxes. For these individuals, however, there are options.
For example, in many cases a person’s largest asset is his home. A qualified personal residence trust, also known as a QPRT, can help save on estate taxes when a family residence passes to a person’s heirs. The QPRT works by sheltering both current and future home appreciation. The trust requires, however, that the person who creates the trust outlive the specific term of years set by the trust. If the trust creator dies, then the real estate goes back into his estate.
For those who have substantial stock holdings, a grantor retained annuity trust, also known as a GRAT, may be an option. GRATs are generally used to shelter stocks that the creator of the trust believes are likely to appreciate in value.
For more information about whether a QPRT or a GRAT is right for you, contact an experienced estate planning attorney, who can explain your options.
Source: Fox Business, “Shielding Your Assets From Estate Taxes,” Judy Martel, July 29, 2013