We certainly rang in the New Year with some political excitement, as last-minute negotiations attempted to avert sending the nation over the so called “fiscal cliff.”  January 1, 2013, saw retroactive legislation pass the U.S. Senate, and then, of course, the House of Representatives. For the last decade we, Estate Planners, have been forced to plan under legislation that contained expiration dates. The American Taxpayer Relief Act of 2012 (ATRA) now gives us some certainly with which to plan as it has “permanently” extended a number of major tax provisions and temporarily extends others.

Some very important changes have occurred under the new laws and are detailed clearly in estateplanning.com’s article here.  Keep in mind that the Federal changes do not make any change in State law as it relates to Estate and Inheritance taxes. (see more below regarding state taxes).

In light of the new laws, there are significant opportunities in relation to irrevocable trusts.  As detailed in this estateplanning.com article, even with the Act in place, there are still some viable techniques available to freeze the value of assets and take the appreciation out of your estate to reduce taxes.  Moreover, the Act did not address limiting terms on grantor retained annuity trusts or curbing grantor trusts, so these estate planning tools remain enticing options for families, especially in the continued low interest rate environment.

Nonetheless, as explained best by estateplanning.com, “if you did not take full advantage of opportunities to move assets out of your taxable estate last year, here are 10 reasons why you should consider doing so now.

I mentioned above that these federal law changes do not make any changes to the NJ and PA Estate and Inheritance taxes and it is just as important now as it ever was to plan for New Jersey’s paltry estate tax exemption of $675,000 as well as the New Jersey and Pennsylvania Inheritance tax. These taxes can range anywhere from 4.5% to 16%.  Just add up the value of your home, the life insurance you have, your investments in the market, 401(k), IRA’s, etc., and you quickly reach New Jersey’s threshold where they will tax you on the excess.

Last, for those who are thinking “my estate is less than the $5 million range so I don’t need estate planning,” that simply is not true! Estateplanning.com does a great job reminding us that proper estate planning provides peace of mind by allowing Americans to:

• Avoid state inheritance/death taxes that have lower exemptions than federal taxes;
• Avoid probate, which can be quite expensive and time-consuming in some states;
• Ensure their assets are distributed the way they want;
• Protect an inheritance from irresponsible spending, a child’s creditors, and from being part of a child’s divorce proceedings;
• Provide for a loved one with special needs without losing valuable government benefits;
• See that control of their assets remains in the hands of a trusted person;
• Provide for minor children or grandchildren;
• Help protect assets from creditors and frivolous lawsuits (especially important for professionals);
• Protect themselves, their family and their assets in the event of incapacity; and
• Help create meaningful charitable gifts.

For individuals with larger estates, now more than ever is the time to take advantage of tax planning opportunities. Between the increase in estate and income tax rates, and the looming possibility of Congress to restrict estate planning techniques in order to find more ways to increase revenue, now is the time to put these strategies in place so they are more likely to be grandfathered from future law changes.

As always, if we can be of assistance to you, your family or friends, please let us know by contacting Charles Bratton at our Haddonfield, NJ office at 856-857-6000.