Tips on how to ride the estate tax roller coaster

The season for changing estate tax exemptions is upon us. Only four months ago, a so-called “permanent” exemption was created for estates of $5 million or less. However, because there was nothing in the national budget proposal that said Congress couldn’t change the exemption in the future, the “permanent” limit isn’t all that permanent.

People in Macomb County probably saw headlines about President Obama’s new budget plan. If approved, it would lower the exemption level for the gift tax to $1 million, and lower the level for the estate tax and the generation-skipping tax on transfers to $3.5 million. Since those changes wouldn’t happen until 2018, there is still time to adjust.

We’ve written before about the benefits of creating a trust. If the new budget keeps all of its aspects, then establishing a trust is increasingly a better idea for Michigan residents with significant assets in retirement accounts.

At present, if you stipulate it in your estate plan, your heirs can withdraw from your retirement account throughout their lifetime. Taxes are paid when the money is distributed. But the new budget would change how that process works. Within five years, every heir who isn’t a widow or widower would have to withdraw all of your retirement money.

That makes moving IRA money into a trust a little more attractive to those who want to prevent tax liabilities for their heirs.

Even if you have a solid will in place, estate planning is an ongoing process that requires some diligence. As tax laws change, revisiting your estate plan with your attorney can help keep your best interests and those of your loved ones a top priority.

Source: The Wall Street Journal, “Estate Planning: New Hazards,” Kelly Greene, April 26, 2013