Your wealthiest clients and prospects may have heard by now some good news about estate planning. But that’s a problem. What they’ve heard might prompt them to think everything is OK and do nothing. And that’s not the case. A big concern right now is that clients will become complacent about their estates now that the laws have changed, at least according to Jeremy Spackman at Oshins & Associates LLC in Las Vegas.

“When clients hear that the $5.25 million per person exclusion from federal estate and gift tax has been made permanent, they think they either don’t need to do anything right now or they don’t need to do anything at all,” he says.

The January 2 enactment of the American Taxpayer Relief Act, coupled with the new 3.8% Medicare surtax that hits trusts, estates and certain individuals, will give advisors a new opportunity to get in front of the affluent with estate planning help. New advantages—and challenges—await the wealthy, even those who updated their estate plans last year, anticipating a possible return in 2013 to the estate tax rates of the Clinton era.

Other folks have neglected their estate plans in the last few years, and advisors must let them know they shouldn’t sit on their hands forever, even though the new law is supposedly permanent. “That just means until the next change,” says Spackman. A future Washington, he says, could still lower the high estate tax exclusion, quash bounteous planning techniques or make other unfriendly changes. So clients should act now.

New Rules For Estate And Gift Taxes
Relatively few Americans will owe federal death taxes going forward because of a relatively high exclusion that can cover both estate and gift taxes together (meaning the client can transfer $5.25 million of assets tax-free either before or after death). It’s only those who owe that may pay more.

Under the taxpayer relief act, the estate tax rate now tops out at 40%, 5% higher than before. The clients who are affected must have sufficient life insurance for liquidity. The 40% rate also applies to taxable gifts.

Another permanent feature of the law is spousal portability—which means a widowed spouse can use up the rest of his or her deceased partner’s estate tax exclusion. But it is neither automatic nor hassle-free.

If a widow wants to take the unused exclusion, the personal representative of the deceased spouse must make an election on a federal estate tax return. The return must be filed on time, with an extension allowed, after the first death, says Boston attorney Mary Schmidt, founder of Schmidt & Federico. These actions entail a return-preparation fee that may not otherwise have been necessary.

Moreover, the first estate must remain open for tax purposes until the second spouse passes on. “The statute of limitations doesn’t begin to run, so the personal representative of the first spouse’s estate doesn’t get released from liability,” says Schmidt. That’s something to consider when one spouse is much younger. The personal representative could be on the hook for longer than he wants to be.

“It may seem like a win-win for the parties to agree in a prenup that the survivor can utilize the unused estate tax exclusion. But with second marriages, portability can be a hot issue,” says Schmidt, who specializes in estate planning for blended families.

First « 1 2 3 » Next