On March 21, 2013

Although Congress recently made a very favorable estate and gift tax exemption “permanent,” it is hard to say with certainty what changes will come into effect for residents of Colorado and other states as a result of the recent government sequestration. Under sequestration, there is a possibility that many of the following estate planning techniques will be impacted as the government seeks avenues to increase revenue.

The benefits of a grantor trust include the donor paying the tax on the trust’s income. This benefit could potentially be eliminated under sequestration. It is also possible that a 10-year minimum term could be imposed on short-term grantor retained annuity trusts. A gift element may also be adopted as a requirement for these annuity trusts. Valuation discounts may have decreased availability in the use of discounted entities and dynasty trusts. Other proposed changes to these trusts include introducing a 90-year limitation on GST exempt dynasty trusts. 

Previously, these benefits have allowed people to easily move assets outside of their estate while still retraining flexibility. If the sequestration’s proposed changes are realized, the world of estate planning may change drastically.

At this point in time, no one knows for sure what changes sequestration will bring. However, as government spending cuts are implemented, it is likely that the government will seek to increase revenue. It is not a stretch of the imagination to speculate that the above strategies may be easy targets for the government.

Given the uncertainty surrounding the future of estate planning and the strategies discussed, it is critical that individuals and families who can benefit from sound estate strategies seek advice from an attorney experienced in the area of estate planning in order to discuss how changing laws may effect their estate.

Source: Forbes, “Estate Planning Moves Before Sequestration is Resolved,” Rob Clarfeld, March 8, 2013

Categories: Estate Planning

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