2012 is the “Perfect Storm” for Estate Planning

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From our friend, Marvin Blum, of The Blum Firm, PC:




The gift tax exemption is at a historical high of $5,120,000 at the same time that the gift tax rate of 35% is the lowest rate in almost a century! The gift tax exemption is scheduled to plummet to $1,000,000 and the gift tax rate is scheduled to revert to 55% on January 1, 2013. You do not want to miss this window of opportunity to save taxes.

Other factors also contribute to this “Perfect Storm”:

  • Current low asset values offer great upside potential as values recover;
  • Historically low interest rates make “estate freeze” techniques even more attractive (the rates applicable for transactions occurring in June are at an all-time low);
  • Intra-family transfers can qualify for valuation discounts for lack of marketability and lack of control; however, the government is targeting these discounts for elimination;
  • “Defective” Grantor Trusts (DGTs) are still available but also on the government’s hit list. DGTs allow the grantor to sell assets to a DGT without owing income tax. Another advantage is that a DGT allows the grantor to “supercharge” gifts by having the grantor (instead of the trust) pay income tax on DGT income.

With this “Perfect Storm,” the goal is to create an estate plan that, given sufficient time, eliminates the estate tax. Regardless of the size of your estate, it is realistic to reach a point where the estate tax is zero. However, the planning window is closing December 31, 2012.

Consider the following ideas to capture the benefits of the exemption. Note that a married couple can give up to $10,240,000 in 2012 without paying gift tax.

1.   Gifts to Traditional Trust for Heirs;

2.   Supercharged Gift to “Defective” Grantor Trust (DGT);

3.   Estate Freeze Sale to DGT;

4.   Estate Freeze Sale to “678 Trust”;

5.   Gift to Spousal Access Trusts;

6. Gift of an Undivided Interest in Real Estate or Real Estate Partnership;

7.   Create Qualified Personal Residence Trust (QPRT);

8.   Create Irrevocable Life Insurance Trust (ILIT);

9.   Gift to Domestic Asset Protection Trust (DAPT); and

10.  Engage in Step Down Planning.

Click here to read our handout that describes these options in greater detail.

2012 Planning Checklist – Planning in a “Perfect Storm”

Please contact us to discuss how you can take advantage of this “Perfect Storm” and save significant dollars.


Marvin Blum

The Blum Firm, P.C.


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