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2010 Tax Relief Act presents estate planning challenges, benefits

For residents in New Jersey, estate planning has a new twist with the last minute passage of the Tax Relief Act of 2010. The law brought back estate and gift taxes, including lower rates and higher exemption amounts. These new provisions are short-term and apply to gifts made by the living and taxes paid on estates after death.

In 2012, rates and exemption amounts are set to return to the levels they were at in 2001. Until then, the maximum tax rate on amounts over $5 million is set at 35 percent, while the maximum gift tax is 35 percent on estate planning transfers of more than $5 million done over a lifetime.

Financial planning experts express frustration with the ever-changing landscape of estate taxes and exemptions at the hands of an unpredictable U.S. Congress. They point out that estate planning occurs over a generation and demands more stability.

The current two year window is an opportunity for the wealthy to make large gifts by placing assets in grantor trusts for children and grandchildren. A grantor trust allows the person that made the gift to pay taxes on the income earned from the trust and not deduct it from the trust amount itself.

Attorneys and financial planning experts say that trusts may help insulate an estate from the changes in taxes and exemption rates. Some say even making smaller gifts makes sense at this point in time.

Estate planning is best done by attorneys and others who are skilled at setting up trusts and in helping to provide a solid plan for how your assets are to be distributed after your death.

Source: Fox Business, "To Give or Not to Give? The 2-Year Estate Planning 'Opportunity'" Gail Buckner, 27 June 2011

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