Home > Research Legal Advice > Estate Planning > How can I protect my parents' trust from the 2013 expiring estate tax?
Asked 6 months ago - Sacramento, CA
FlagMy parents are 90 years old, in assisted living, and their estate is worth about $4 mil. Their income is currently covering their expenses, and they are not yet touching the principle. As part of the 2013 fiscal cliff, the estate tax will go from $5mil untaxed to $1mil and 55% of everything beyond it going to the Feds. What can I do to protect my inheritance? They have a trust, and I am currently trustee as they have resigned, and I manage their finances. The trust is set up as A & B as after one passes, the other will live off A, and B is put aside. 25% of everything will go to my half sister and 75% will go to me. I will inherit the home and all other personal belongings. What can I do to protect these assets? The home and personal belongings are unaffected, right?
This really is something your parents should speak with an estate planning attorney and probably CPA as well about. No one knows what Congress will do about the estate tax, but the consensus seems to be that the exemption amount will not be reduced to $1 million. I believe even Obama has said that he supports a $3.5 million exemption. Anyhow, your parents' estate is certainly large enough that it is worth it for them to hire an attorney to help them determine if they should do anything at this point.
Don't get too nervous yet, the lifetime estate tax exemption will be on the table when Obama and Boehner get together next Friday. I don't expect it to stay at $1M for 2013, but we'll see. There are some complex trusts that can be used to leverage the exemption and the annual gift exclusion will be $14,000 next year. If you are married, your mom and your dad could give you and your wife (if you are married) a total of $56,000 ($14,000 x 4) without having to file a gift tax return.
When President Obama took office, he was on record as supporting an estate tax exemption of $5,000,000, indexed for inflation. My guess is he will advocate for leaving the exemption right where it is. There will be movement on this in the next month, for sure. It makes little sense to jump tall buildings and generate huge transactions (and resulting costs), when you do not know if it will be needed.
James Frederick
With two trusts(A/B) -you have two exemptions.
If the exemption goes to one million-your parents could only leave 2M tax free.
Some clients are making substantial gifts this years while the exemption is 5M to take advantage
of the higher amount before it might drop.
This is a guessing game at this point on what to do.
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