Estate Planning About to Change

Last Will and Testament

Could this be the golden age of estate planning? Some financial advisers believe it is — at least until the end of the year. That’s when key income tax breaks for transferring wealth are scheduled to expire.

“We’re in a unique period in the history of estate taxes and transfer taxes in general, and it may be short-lived,” said R. Hugh Magill, chief fiduciary officer at wealth management firm Northern Trust.

Here’s the situation: The gift and estate taxes are separate taxes, but their rates and exemption levels are the same. Under current law, each person can give away or leave to his or her heirs up to $5.12 million with no federal gift or estate tax consequence. Gifts or inheritances greater than that amount are taxed at a top rate of 35 percent.

Unless Congress acts, the federal gift and estate tax exclusion will revert to $1 million on Jan. 1, and the marginal tax rate will rise to 55 percent. Financial advisers say this is a great window of opportunity for the affluent to transfer wealth.

“The 2010 Tax Reform Act ushered in this unprecedented era of dramatically higher exemptions,” Magill said.

In fact, the current tax exemptions are the largest in history, said Debbie Cox, managing director and wealth adviser at JPMorgan Private Bank in Dallas. What’s more, the 35 percent top tax rate is “the lowest rate that we’ve had on wealth transfers since 1931,” Magill said.

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