Legal Bulletins

Estate Planning – 2013 and Beyond. In our last Bulletin concerning estate planning, the federal law was scheduled to revert to a much harsher wealth transfer tax system, with a $1 million federal estate, gift and generation-skipping transfer tax (“GST”) exemption, and a top tax rate of 55%. The wealth transfer tax laws stood atop the fiscal cliff with the income tax laws. Alas, from a estate planning perspective, the American Taxpayer Relief Act of 2012 (the “2012 Act”) brought us all down to sea level – not much was changed. The 2012 Act is a bit of a misnomer; it was enacted in 2013, continuing an unfortunate trend by Congress in recent years to show a disregard for the estate planning public, many of whom were waiting until the final days of 2012 to decide whether to implement gifts. Although the 2012 Act arrived a day late, it contained some welcome news for estate planners.

The 2012 Act provides for:

· A $5 million (adjusted for inflation) exemption for estate, gift and GST purposes. For 2013, the exemption is $5,250,000.

· A top federal estate, gift and GST tax rate of 40% - up from 35% but far less than 55%.

· The retention of “portability” - the ability of a surviving spouse to use the unused federal estate tax exemption (but not GST exemption) of his or her most recently deceased spouse. Thus, if the first spouse to die did not use any of his or her estate tax exemption, the surviving spouse may have $10.5 million of estate tax exemption to use with respect to his or her estate or gift tax.

· The reinstitution of the $100,000 IRA charitable rollover through 2013 for persons over 70-1/2. This Bulletin does not discuss any of the many changes made in the income tax laws by the 2012 Act, but this change can impact your gift planning.

· “Permanent” estate, gift and GST exemptions and tax rates. You may be chuckling about the use of that word, but at least the new law does not have a built in termination date, which would cause a reversion to a prior law.

Estate Planning Opportunities Still Abound. Many of you implemented gifts before the end of 2012. For the vast majority of those who did so, these were gifts that, objectively speaking, were advisable a long time ago. It simply took the pending reversion to a harsher wealth transfer tax system to provide the impetus. The good news is that these planning opportunities still exist. The sobering news is that although exemption amounts and rates are supposedly permanent, a number of estate planning tools remain under scrutiny by the current administration. These include the use of valuation discounts for interests in closely-held businesses, the structuring of GRATs (grantor retained annuity trusts), and the use of multi-generational (“dynasty”) trusts. Thus, if you did not make gifts in 2012, please give serious thought to using this second chance to make a gift now. One of the key benefits to making a large gift is the removal of the post-gift appreciation of the asset from your estate. Accordingly, the sooner you make the gift, the more your estate will benefit. Please contact us to discuss whether gifting makes sense under your circumstances (e.g., your needs, growth potential of asset, income tax basis of asset).

Increase in Gift Tax Annual Exclusion Amount. Unrelated to the 2012 Act,the amount which one can give to any one recipient during the calendar year without any gift or estate tax consequences has increased from $13,000 per recipient to $14,000 per recipient. Remember that the tax laws allow one to make direct payments of qualifying tuition or medical expenses on behalf of an individual without having those gifts consume any portion of the $14,000 annual exclusion or your estate and gift tax exemption amount. Additionally, you may want to take advantage of the option to contribute to a child’s Section 529 college savings account in a single year an amount equal to five (5) years of one’s annual exclusion amount ($14,000/year at once, for a total of $70,000). Please call us or your CPA to discuss the nuances of such 529 Plan gifts. Also, consult your financial advisor regarding the various investment options available.

Don’t forget the Maryland estate tax. Lastly, do not forget that Maryland assesses an estate tax on estates valued at more than $1 million. This includes the value of your liquid assets, retirement accounts, life insurance policies which you own, equity in your home, business interests, and other assets. Another reason to consider a gift is that Maryland does not add back gifts made during your life to the computation of the Maryland estate tax. Federal law requires that the amount of gifts in excess of your annual exclusion and exclusions for gifts for tuition and medical expenses be added back. As we have mentioned in prior Bulletins, contact us to make sure that your Will or Revocable Trust addresses key significant changes made to the Maryland estate tax in recent years.

Maryland Marriage Equality Act

Effective January 1, 2013, same sex couples can legally marry in Maryland. As a result, married same sex couples are now afforded the same rights as married heterosexual couples in Maryland, including the right to: (1) make certain medical decisions; and (2) a portion of the other spouse’s estate. However, these rights can be impacted by advance directives, marital agreements, and various estate planning documents. If you are in or plan to enter into a same sex marriage, we encourage you to contact us if you would like to discuss these matters further.

If you have any questions about these matters, please contact your regular Gordon Feinblatt LLC attorney, or our Trusts & Estates Group:

Lowell G. Herman 410-576-4129
Thomas Sessa 410-576-4019
Laura L. Johnson 410-576-4065
Marc P. Blum 410-576-4240
Cheri Harman Dorsey 410-576-4078
Mary Rose E. Cook 410-576-4215