Estate planning opportunity exists

Congress’ gridlock on estate taxes may be your opportunity to act.

In 2009 the estate tax exemption (the amount an individual could pass at death estate tax-free) was $3.5 million. It was set to be unlimited in 2010, and then to revert to $1 million for 2011.

Most people expected Congress to act prior to year-end in 2009 to override the unlimited exemption, but it didn’t. In fact, we didn’t hear of any reform until Dec. 17, 2010. At that time, President Barack Obama signed into law changes to the tax code effective for 2011 and 2012. The estate tax exemption increased to $5 million — the largest estate tax exemption amount to date (barring 2010’s unlimited exemption) — and the estate and gift tax exemptions became unified.

Key Points

Estate tax exemption stands at $5 million per person for 2012.

If Congress doesn’t act, it will revert to $1 million in 2013.

Creating an irrevocable trust now will lock in the $5 million exemption.


This year, individuals can make a combined total of $5 million in lifetime gifts and estate transfers at death, tax-free. For couples, the exemption is $10 million.

If Congress doesn’t extend or change the exemption by the end of 2012, it reverts to $1 million.

So there is an opportunity this year to take advantage of a sizable increase in the estate and gift tax exemption.

Often people are hesitant to make a large lifetime gift because they do not want to relinquish control of their hard-earned assets. However, loss of control does not equal loss of asset protection.

Transferring the assets into a specially-drafted irrevocable trust can provide divorce protection, creditor protection and spendthrift protection if a beneficiary is not ready to manage the assets, as well as flexibility for those beneficiaries who are responsible.

Additionally, certain irrevocable trusts can be used to protect the assets from being subject to estate tax for several generations (i.e., not just your children, but also your grandchildren).

We have designed a trust to capture this 2012 opportunity, as well as to protect and preserve viability of the farming operations.

There are many factors to consider prior to making this type of lifetime transfer. Contact a qualified estate planning attorney today to discuss whether this 2012 opportunity is right for you.

Thompson is an estate attorney in Sioux Falls, S.D. Call her at Thompson Law, P.C. at 605-362-9200, or visit her website, www.cathompsonlaw.com.

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This article published in the March, 2012 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2012.