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Estate planning tactics for those who don't need portability

In the past couple months, we've focused a few posts on the impact the new tax laws will have on individuals. We've discussed how easily individuals can exceed the $5 million exception, but today we're going to focus on individuals who don't expect to come close to the tax exemption.

In New Jersey, even individuals who do not come close to the $5 million exemption should still familiarize themselves with the new tax laws and update their estate plans accordingly. Under the new tax laws, a spouse who does not use his or her full exemption can transfer the unused portion to the surviving spouse.

This exemption transfer is called portability, but it is currently only scheduled to apply to deaths in 2011 and 2012. At that point, if Congress does not sign portability into a permanent law, it will not apply for deaths after 2012. There is currently a great deal of support for portability, so Congress is expected to sign portability into effect.

Even with the current portability laws, that does not mean individuals can simply assume their current estate plan will protect their financial rights. Without proper planning, spouses who fail to plan for the exemption could suffer heavy tax penalties.

To help individuals better plan for the tax exemption, experienced lawyers can help couples create trusts. When the first spouse dies, trusts are funded up to the tax-free amount. The trust provides financial support to the living spouse as long as he or she is living. When the second spouse dies, the trust can be passed on to the next generation.

Because portability and other estate planning tactics are not automatic, it is important for individuals to take the time to educate themselves about the new tax laws and make sure their estate planning documents are up to date.

Source: Forbes, "Estate Planning for Two," Deborah L. Jacobs, 1 April 2011

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