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At Fleming Financial Services, Inc., our role is to assist our clients in defining and realizing their financial objectives and goals. We work with our clients to implement personalized plans designed for their unique situations. Our areas of concentration are: Retirement planning, Estate and Wealth Transfer strategies, and Business Continuation planning. We emphasize the importance of conducting our business with integrity and professionalism. As a member of PartnersFinancial, an independent national financial services company, we are able to provide access to sophisticated resources for the benefit of our clients. Some of the professionals with our firm are currently registered to conduct business through NFP Securities, Inc. With those additional resources in place, we help facilitate the complex corporate and personal financial decisions our clients must make.
The New Estate Tax Rules and Your Estate Plan-Part 1
Fleming Financial Services, PA, Estate PlanningThe Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Act) included new gift, estate, and generation-skipping transfer (GST) tax provisions.  The 2010 Tax Act provided that in 2011 and 2012, the gift and estate tax exemption was $5 million (indexed for inflation in 2012), the GST tax exemption was also $5 million (indexed for inflation in 2012), and the maximum rate for both taxes was 35%. New to estate tax law was gift and estate tax exemption portability:  generally, any gift and estate tax exemption left unused by a deceased spouse could be transferred to the surviving spouse in 2011 and 2012. The GST tax exemption, however, is not portable. Starting in 2013, the American Taxpayer Relief Act of 2012 (the 2012 Tax Act) permanently extended the $5 million (as indexed for inflation, and thus $5,340,000 in 2014, $5,250,000 in 2013) exemptions and portability of the gift and estate tax exemption, but also increased the top gift, estate, and GST tax rate to 40%. You should understand how these new rules may affect your estate plan. Exemption portability Under prior law, the gift and estate tax exemption was effectively "use it or lose it." In order to fully utilize their respective exemptions, married couples often implemented a bypass plan: they divided assets between a marital trust and a credit shelter, or bypass, trust (this is often referred to as an A/B trust plan). Under the 2010 and 2012 Tax Acts, the estate of a deceased spouse can transfer to the surviving spouse any portion of the exemption it does not use (this portion is referred to as the deceased spousal unused exclusion amount, or DSUEA). The surviving spouse's exemption, then, is increased by the DSUEA, which the surviving spouse can use for lifetime gifts or transfers at death. Example:  At the time of Henry's death in 2011, he had made $1 million in taxable gifts and had an estate of $2 million. The DSUEA available to his surviving spouse, Linda, is $2 million ($5 million - ($1 million + $2 million)). This $2 million can be added to Linda's own exemption for a total of $7,340,000 ($5,340,000 + $2 million), assuming Linda dies in 2014. The portability of the exemption coupled with an increase in the exemption amount to $5,340,000 per taxpayer allows a married couple to pass on up to $10,680,000 gift and estate tax free in 2014. Though this seems to negate the usefulness of A/B trust planning, there are still many reasons to consider using A/B trusts.
  • The assets of the surviving spouse, including those inherited from the deceased spouse, may appreciate in value at a rate greater than the rate at which the exemption amount increases. This may cause assets in the surviving spouse's estate to exceed that spouse's available exemption. On the other hand, appreciation of assets placed in a credit shelter trust will avoid estate tax at the death of the surviving spouse.
  • The distribution of assets placed in the credit shelter trust can be controlled. Since the trust is irrevocable, your plan of distribution to particular beneficiaries cannot be altered by your surviving spouse. Leaving your entire estate directly to your surviving spouse would leave the ultimate distribution of those assets to his or her discretion.
  • A credit shelter trust may also protect trust assets from the claims of any creditors of your surviving spouse and the trust beneficiaries. You can also include a spendthrift provision to limit your surviving spouse's access to trust assets, thus preserving their value for the trust beneficiaries.
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