financialplanning
future. Any future add-backs of a $5 million
gift today may increase the client’s future
estate tax burden by either causing bracket
creep or actually taxing some of the $5 million, but the appreciation of the $5 million gift
shall avoid federal death taxes forever.
The problem for most with a $5 million gift
is affording it! Just because a married couple
has net worth in excess of $10 million doesn’t
mean that the couple can afford to part with
$10 million forever. But for those highly motivated to avoid death taxes, there are ways
to have your cake and eat it, too. By that, I am
referring to intentionally defective trusts or
self-settling trusts where the gift is deemed
complete for gift and estate tax purposes, but
the donors may request distributions from
the independent trustee if needed. Neither
donor may be a trustee, but both or either
can retain the right to remove a trustee for
any reason whatsoever. If a friendly trustee
Will
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22
ever denies your client the privilege of a distribution, that person or institution can be
replaced. Of course, the entire $5 million and
any future appreciation may stay out of your
estate forever, so this really should be the last
pocket that you use, if possible.
PORTABILITY
A new word was introduced last year to the
estate planning lexicon: portability. In a nutshell, portability refers to a surviving spouse’s
ability to take advantage of any unused death
tax credits from a decedent spouse who did
For some deep psychological
reason, many people actually
put off their estate planning.
Another benefit of this type of trust is what
estate planning professionals call the tax burn,
called that because this tax burn is caused by
the donor paying the ongoing income taxes
for what happens inside the trust. Once again,
for larger estates, payment of the tax by the
donor is another way to help reduce the taxable residue of the grantor donor’s estate.
not plan for maximizing the utilization of the
$5 million credit.
To take advantage of the portability rules,
the unused credit must first be transferred
from the estate of the deceased to that of the
survivor. This is done by the filing of an estate
tax return for the decedent, even if there is no
death tax due. Not filing the return will cause
the loss of the unused credit amount forever
in the estate of the survivor. It is important
to note that for clients who may have passed
early in this year that the death tax return may
be due any day now. The problem, however,
is that the Internal Revenue Service does not
have the 2011 version of Form 706 ready for
use, so these estates will need to file a timely
extension to preserve the portability of the
deceased spouse’s unified credit.
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