Archive: June 2024

The federal estate, gift, and generation-skipping transfer (GST) tax exemption amounts have been increased temporarily (i.e., these all-time high exemption amounts are set to expire at the end of 2025). As of 2024, each individual has an exemption amount of $13,610,000 (or $27,220,000 for a married couple), reduced by any prior taxable gifts. This increase in exemption amounts presents a unique opportunity for you. Suppose you took full advantage of the previous federal gift tax exemption amounts. In that case, you now have additional amounts to give away free of any federal estate, gift, and GST taxes, empowering you to manage your wealth more effectively.

Depending on your personal and financial circumstances, here are some estate planning techniques you may want to consider during this significant increase in the exemption amounts:

1. Spousal Lifetime Access Trust (SLAT)

A non-reciprocal Spousal Lifetime Access Trust (SLAT) is an irrevocable trust funded during the donor’s lifetime, benefiting the donor’s spouse and children. This technique is ideal for married couples who want to make lifetime gifts to their descendants but are concerned about permanently giving away a significant portion of their assets that they may need later for lifestyle maintenance or long-term care.

2. GST Exempt Trusts

A long-term GST-exempt trust can shield assets from federal estate and GST taxes for multiple generations. The GST exemption amount must either be used during your lifetime or upon death (a “use it or lose it” exemption).

3. 529 Accounts

529 plans provide tax-advantaged savings specifically for educational expenses, allowing contributions to grow free from federal and state taxes. Also 529 plans offer the advantage of front-loading contributions with the ability to use up to five years of annual exclusion gifts at once. Additionally, withdrawals for qualified educational expenses are tax-free, making 529 plans a powerful tool for families preparing for their children’s or grandchildren’s educational future.

4. Ohio Custodial Accounts

Ohio custodial accounts offer a flexible and tax-advantaged way to save and invest for minors, managed by a custodian until the beneficiary reaches age 25. These accounts provide a straightforward method to transfer assets while retaining control over withdrawals and investments until the minor reaches the specified age. They can also serve as a practical tool for education funding and financial planning, offering potential tax benefits for both the donor and beneficiary.

Reviewing Existing Trusts

The increased exemption amounts prompt you to review existing revocable trusts that include a funding formula for a credit shelter trust. Typically, the formula provision directs the trustee to fund the credit shelter trust with the maximum amount of assets that can pass free of federal estate tax or GST tax upon your death. With the current exemption amounts, this formula may cause an unforeseen result where a majority or all of your assets are directed into the credit shelter trust, possibly away from your surviving spouse.

Maintaining and Updating Your Estate Plan

Tax changes highlight the importance of regularly maintaining and updating your estate plan. Your estate plan is a living document that guides you, your authorized representatives, and your loved ones during your life and after your death based on your desires. By reviewing and updating it periodically and retitling your assets per your estate planning documents, you proactively ensure that your estate plan reflects your current desires and accounts for legal and tax changes or personal circumstances like divorce, death, bankruptcy, or behavioral issues.

Final Thoughts

By considering these proven estate planning strategies and maintaining your estate plan, you can ensure that your assets are managed and distributed according to your wishes. Regular reviews and updates are crucial to adapting to changes in the law and your circumstances and ensuring that your estate plan continues to serve its intended purpose effectively. This reassurance should give you confidence in the effectiveness of your estate planning efforts.

Maximizing your time is crucial when preparing for your initial meeting with an estate planning attorney. You can ensure a productive discussion and a smoother estate planning process by bringing the correct information. Here are five essential items to bring to your first meeting:

1. Family Tree

A detailed family tree is not just a piece of information; it’s a key to understanding your unique family dynamics. Your estate planning attorney needs this to ensure your estate plan reflects your family’s needs and values. Include yourself, your spouse, children, and any relatives you trust to make financial and medical decisions on your behalf. Additionally, list the relatives you intend to name as beneficiaries. For each person, provide their date of birth, contact information, and relationship to you (e.g., spouse, child, sibling).

2. Asset and Liability List

Prepare a comprehensive list of your assets and liabilities. Include account balances, ownership details, and designated beneficiaries. This information allows your attorney to create a customized estate plan that ensures your assets are appropriately titled and managed according to your wishes.

3. Advisor List

Estate planning often involves a team of professionals, and you are the captain of this team. Provide your attorney with the names and contact information of your accountant, investment advisor, insurance broker, and personal banker. This coordination among these advisors, guided by you, is essential for a well-rounded estate plan.

4. Key Decision-Maker List

Identify individuals who will make financial and medical decisions on your behalf if you become incapacitated or pass away. Consider their location, expertise, trustworthiness, and ability to seek professional help. Provide their names and contact information to expedite the estate planning process.

5. List of Special Requests or Concerns

Be honest and open about any special requests or concerns you have. This includes disclosing health issues, family disputes, beneficiaries with special needs, and any unique requests for asset distribution. For example, if you want your antique car collection to go to your brother instead of your children, note it down.

Bringing these five items to your first meeting is not just a task; it’s a step towards a comprehensive estate plan. Being prepared can lead to a quicker turnaround time in preparing your estate plan and reduced legal fees. Most estate planning attorneys charge by the hour, so being prepared can result in significant cost savings. This preparation is the key to a confident and secure future.

Estate Planning: Benefits of Preparation

These steps will ensure a productive initial meeting with your estate planning attorney and set a solid foundation for a comprehensive and effective estate plan. Proper preparation saves time and money and provides peace of mind, knowing your wishes will be communicated and carried out. So, take the time to gather these items before your meeting, and you’ll be well on your way to a successful estate planning process.