(352) 379-1900

MyAppTheme Logo2

Upcoming Estate Tax Changes for 2013

North Florida Estate Planning Lawyer Shannon Miller discusses upcoming changes to the Estate Tax for 2013 and what you can do to avoid a potentially large tax on your estate.


“Right now we have a $5.1 million exemption for estate tax purposes, and that also includes generation-skipping tax as well as gift tax. What it basically means is during 2012, during this particular year, we have this coupon from the IRS that allows us to transfer moneys either by virtue of dying…If you have $5 million and you die, you get to use your coupon as you check out to leave money to others without paying any estate taxes. The same is true for if you’re going to give money to a grandchild or if you’re alive and you decide to give your money away.

During 2012 we have this beautiful exception to many of the other estate planning rules that we’ve had in the past that basically allows us to give money away without paying estate taxes. In 2013, January 1 of 2013, although no one can predict whether or not there will be a change in the federal legislation that we have right now, but if there is no change, if there is no new legislation that’s passed, then we go back to a million dollar coupon, which a lot of people don’t really understand what that means.

$1 million in your federal estate tax. That would include IRAs–a lot of people think IRAs are excluded; they’re not–life insurance–life insurance is included in $1 million–and your homestead property. Those three things are myths that people have. They believe that those would not be included in your federal estate tax calculation, but they are.

When you think about, ‘Okay, I have $500,000 and life insurance, I have a homestead worth $250,000, I have cars, I have an IRA worth $150,000,’ you’re at the million dollar level. What happens after you get to that million dollar level and you die? You died, your homestead, all this other stuff is in your name, you have $1.5 million in assets. When you die and you go to the IRS checkout counter and you give them your million dollar coupon, you’re also going to have to write them a check because that $500,000 above the $1 million is going to be taxed at a rate, and we don’t know what it’s going to be, but it likely will be between 45 and 55 percent. You’re talking about handing over to the IRS a check for an additional $300,000. You just took your life insurance and halved it.

Estate planning. When you do trust base planning, you can do a lot to help yourself in really minimizing that taxable amount. High net worth clients in 2012– and it’s getting late; I don’t know when you’re listening to this video–but if you are able to do estate tax planning in 2012, doing a gift is a very good way of making sure that you secure that amount that you have available to give to someone else. You could do that by doing an irrevocable trust. You can actually just give money to people.

There are some strategies that are being used where a husband and a wife create trusts where they have beneficiaries being each other but these two trusts are very different from each other. They’re done at different times, they have different provisions for distributions but allow income streams to go to each other and thereby take advantage of that gift tax exclusion amount of $5 million. That’s a little higher-end net worth, and people have to be very comfortable with some of the downsides about type of estate planning. If you really want to not pay estate taxes, this is the year to do it, and there are lots of strategies that we can use in order to eliminate estate taxes.

Estate taxes are the only tax that we have that are optional. We can use graph planning. We can use something called ILET or an irrevocable life insurance trust. If we have $1.5 million in assets and we have $500,000 as life insurance proceeds, what you basically do is you take that $500,000 of life insurance and you create a separate entity that then owns that life insurance policy. The trust itself becomes the owner of the policy. It takes it out of your estate and puts it in this trust estate.

Now you only have $1 million in assets, so when you die, that life insurance trust becomes its own separate entity and is not taxed so you’ve just saved yourself $250,000 or $300,000 depending on if you’re at 45 or 55. You’ve saved yourself quite a substantial amount of taxes by doing that simple thing, just taking the title of that life insurance and putting it in an irrevocable life insurance trust.”

Comments are closed.