Doing the estate tax tango

The national budget plan recently proposed by President Obama may remind estate owners in Florida that "permanence" isn't necessarily permanent. At the beginning of this year, a tax exemption for estates of $5 million or less was put in place, with legislators and the president calling the exemption "permanent." But, since there was no language in that budget plan that barred Congress from reconsidering the estate tax exemption, a new budget plan could lower (or raise) the exemption level.

The budget plan for 2014 includes a provision that would lower the exemption amounts for the gift tax, estate tax and the tax on transfers to younger generations (commonly known as the GST tax). In particular, the proposal would lower the gift tax exemption level to $1 million and the exemption level for GST and estate taxes to $3.5 million. Those changes, if approved, wouldn't go into effect until 2018.

That gives estate planners some time to react.

Consider also the way the budget proposal would affect retirement accounts and those who inherit them. Right now people who inherit IRAs can withdraw from them over the course of their expected lifetime. Tax has to be paid only when the funds are distributed. The new budget, however, would require all heirs except widowers and widows to withdraw all of the retirement money in five years or less.

Trusts are the way to go for many current IRA holders. Setting up a trust can make it easier for family members named as trust beneficiaries to avoid future tax liabilities.

To keep in step with the changing tax and distribution rules, Orlando residents would do well to consult with an estate planning attorney. Estate plans require revisiting over time, especially when national budget concerns loom so largely in the public consciousness.

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

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