Permanent Federal Exemption Causes Shift In Estate Planning

With some welcome degree of stability arriving for the federal gift, estate and generation-skipping tax exemptions, estate planners are increasingly turning their attentions to state estate taxes, according to a recent article on the website of the American Institute of Certified Pubic Accountants.

“Now that the $5 million federal exemption is permanent, estate planners need to refocus their energies, and their clients, on creating estate plans that are less concerned with avoiding federal taxes and more concerned with managing and maintaining wealth for current and future generations,” the article notes.

“Although the sentiment that ‘the law may change’ will encourage some clients to cling to the old structures, there still will be a move toward simplicity. Clients want transparent, understandable planning tools and no longer believe they need anything complex to accomplish their overall goals. Post-mortem techniques will allow advisers and families to have a ‘second look’ nine months after the date of the decedent’s death, i.e., before the estate tax return is due, to correct any factual mistakes or account for changes in the law that occurred since the documents were established.”

This simplification for estate planners and their clients includes a greater focus on tax planning at the state level, the CPA website points out.

“For many families, federal estate tax planning will no longer be the main driver,” the authors continue. “State estate and inheritance taxes will now be in the spotlight. In some states, the exemption is as low as $1 million and the state estate tax rates reach 16 percent. A $10 million estate that may not pay any federal estate taxes could pay as much as $1.44 million in state estate taxes.

“Although the state in which a decedent is domiciled controls the bulk of the tax, it becomes complicated to calculate the state estate and inheritance taxes when families own property in several states.”

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