Tuesday, May 18, 2010

Estate Planning in a Down Market

Wealth transfer is a huge issueopen your eye for those who expect their heirs will have to pay estate taxes at rates up to 45%. The tax code permits $3.5 million to be exempted from estate taxes, $1 million of which may be giventhe love of my life away before death as gifts. The estate tax is in play in Washington now. Under current rules, it disappears briefly in 2010, then returns with a lower exemption and a higher rate in 2011. But experts believe Congress will take action before the tax disappears and that the $3.5 million exemption is likely to remain.
Living life over
For 2009 you can give away up to $13,000 per beneficiary without having to pay taxes. (The $1 million lifetime limit applies to gifts abovecomputer key that yearly gift exclusion.) When asset values are depressed, as they are now, that gift-tax exclusion is more valuable. Consider: If you have 500 shares of Stock A thatno word traded at 100, with the gift-tax exclusion at $13,000, you would have been able to transfer only 130 shares before bumping up against the hefty tax. But if the shares have been knocked down by 40%, in line with the broader market, you can transfer 217 shares tax-free. The same thinking applies to getting the most out of the $1 million exemption. (The downside risk: If the stock keeps falling, you've used up part of your exemption for nothing.)

This is the simplest of all estate-planning moves for a down market. "You're trying to reduce the size of your balance sheet before you die," Weigandt says. "The question is, are you comfortable reducing your current assets to save your kids something on the estate tax? That question is harder now. But it's not all or nothing: You could take steps to give away heavily discounted assets in smaller increments."http://www.fpdf.de/forum