Many in our area have decided to visit a New York estate planning attorney this year in order to learn how they can take advantage of Tax Relief Act which President Obama signed in December. As many are aware, the law allows individuals to give gifts up to $5 million without triggering any tax losses. Couples can give twice that amount. This is five times more than under previous law. The rule changes only apply until 2012, however, so it remains vital that all families take advantage of this favorable condition while they still can.
Worth.com recently provided a nice summary of a few ways that residents can act while the tax law is in effect. Perhaps the simplest way to use the increased exemption rate is to give a gift to a responsible adult child or grandchild. If you were considering creating a portfolio for a loved one, now might be the ideal time to do it.
Also, this year is the perfect time to create an irrevocable life insurance trust, because the trust can be funded with the new $5 million exemption. Even without the increased tax-free amount these trusts are important parts of an estate plan. They pay for life insurance premiums and can also be used to help settle how much each heir will receive in the future.
Another option might be the creation of a qualified personal residence trust (QPRT). The QPRT is helpful for those who have value tied into residential property. If the individual seeks to have their children own that property than the new law is helpful because it allows them to allocate a larger amount to this trust. A defective grantor trust may be used this year to take advantage of the exemption. As the article notes, "if you seed a defective grantor trust with, say, $1 million, then sell assets worth up to nine times that amount with the trust issuing a note to the grantor, any gains in the trust assets in excess of the note's interest grow tax-free."