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How can I protect my parents' trust from the 2013 expiring estate tax?

Sacramento, CA |

My 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?

Attorney Answers 4

  1. 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.

    This information is not intended, and should not be construed, as legal advice. I encourage those with questions to consult an attorney of their choice for guidance.

  2. 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.

    The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.

  3. 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.

    This response is for informational purposes only and does not constitute legal advice. No attorney-client relationship is created as a result of this response.

  4. 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

    *** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.

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