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Ring in the New Year’s Estate Tax Changes!

Estate taxWhen the glittery ball fell in Times Square on New Year's Eve, it brought a roar from the revelers — and more quietly, good news for asset owners and their heirs who may not be uber-rich: In 2015, only estates worth more than $5.43 million per individual would owe federal estate taxes if the estate owner dies this year. Such estate-friendly news for those embarked on personal estate planning strategies for 2015 comes thanks to the American Taxpayer Relief Act, which became law in January 2013. Among its provisions, it made permanent the temporary $5 million federal estate tax exemption, created in 2010, that's been inflation-adjusted since 2012.

Experts agree that this change (and others) means that a fresh look at estate planning and asset protection should be top priorities for individuals planning for retirement or who are already retired.

The Investor's Business Daily says this could be good news in its articleEstate Planning For 2015: How To Protect Assets From Taxes as it could possibly create better asset protection. However, the article also warns of the complexity of these changes, and that you should consult an experienced estate planning attorney to ensure that your particular circumstances are addressed.

As the original article notes, there's no one-size-fits-all pattern to state death taxes. Currently 15 states and DC impose state estate taxes, with six states levying an inheritance tax. Maryland and New Jersey have both. In 13 of these states and in DC, the state estate tax exemption is lower than the federal $5.43 million. Consequently, an estate could owe state but not federal estate taxes. The up side is that many of the 15 states are increasing their estate tax exemptions and Tennessee will eliminate its remaining state death tax next year.

Beyond packing up and moving to another state, there are some strategies that can help you reduce or eliminate state death taxes. For example, the original article suggests focusing on lowering capital gains and income taxes on an estate. In some cases, strategies can get complex: various types of trusts may be used and asset owners need to consider numerous issues, such as the "stepped-up basis" rule for inherited property, as well as assessing which assets to buy, sell, or hold, how to hold them, and when to give them away.

There’s also a trend that's still legal in a minority of states, which is more interest in self-settled asset protection trusts. If there are no current creditor claims, the original article says that these trusts can protect assets from future creditors better than other trusts can.

Find out more details by speaking with an experienced estate planning attorney.

For more information about estate planning, please visit my estate planning website.

Reference: Investor's Business Daily (January 2, 2015) Estate Planning For 2015: How To Protect Assets From Taxes”

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