As you likely already know, important changes were made to many of the gift and estate tax laws earlier this year as a result of the passage of the Taxpayer Relief Act of 2013. If you are like most taxpayers, you have focused on the provision of the Act that made the historically high lifetime exemption amount permanent. That provision may impact your estate plan in some not so obvious ways.
The estate gift taxes are levied on assets that remain in your estate at the time of death as well as on gifts made during your lifetime. Taxes are owed on assets that exceed the lifetime exemption amount. The Act set that amount at $5.25 million in 2013, adjusted for inflation on a yearly basis. With such a high exemption amount, many taxpayers who once structured their estate plan around avoiding the tax are no longer required to do so. While this is certainly good news, there may be additional, unforeseen benefits as well to the higher exemption.
One example relates to the use of life insurance in your estate plan. Prior to the increased exemption amount, many taxpayers included a life insurance policy in their estate plan essentially to pay estate taxes only. Moreover, they often could not personally own the policy or the proceeds would be taxed as well. If you are one of these people, you may wish to reconsider your life insurance options now. Permanent life insurance, for example, can provide you with death benefits as well as an investment opportunity that may be an attractive addition to your estate plan.
The point is that by taking the focus of your estate plan off of tax avoidance, you may be able to make some changes to your plan that are advantageous. Be sure to consult with your estate planning attorney to see what options you may have.
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