An enormous opportunity for families to reduce their estate taxes – and in some cases, save millions of dollars – will end on December 31, 2012. If there’s a chance you can take advantage of these savings, it’s wise to act immediately, because unless Congress changes the law, the window of opportunity will close permanently when the ball drops on New Year’s Eve.

Between now and the end of the year, the lifetime exemption from the federal gift tax is $5.12 million. But on January 1, 2013, this exemption is scheduled to be reduced drastically, to just $1 million.

The gift tax applies anytime you make a gift to someone other than a spouse or a charity. In general, you can give any person (or a trust) up to $13,000 a year without there being a gift tax. But if you give someone more than $13,000 in a calendar year, then the tax applies to the excess.

However, you also have a “lifetime exemption.” Over the course of your lifetime, you can make gifts over the $13,000 annual threshold up to the amount of this exemption without paying tax. [Read more…]

Leaving an IRA to your children or grandchildren can be a great idea. That’s because withdrawals from the IRA can be “stretched out” over many years, and the IRA can grow tax-free for decades, giving your heirs a huge tax benefit.

However, if you’re planning to leave an IRA to your heirs, it’s important to talk with them now about this strategy – so they understand how to take advantage of it.

A recent study by the AXA insurance company showed that 87% of children who inherit an IRA from a parent liquidate it within a year of the parent’s death.

Of course, in many cases, the children may have an immediate need for the money. But it also seems likely that there are a large number of cases where the children simply don’t understand the tax advantages of leaving the assets in the IRA – because the family never had a discussion about it.

This is one of many areas of estate planning where the best-laid plans sometimes go awry if the heirs don’t fully understand how the plans are supposed to work.

There’s a limit on how much money you can give away each year without paying gift tax. For 2012, for instance, you can give any person up to $13,000 without paying tax.

Many people make annual gifts to family members as part of their estate planning. This is a smart idea, but one problem is that over time it can result in unequal gifts to different parts of a family.

For instance, Edna has three children: Alan is single, Stella is married with one child, and Andy is married with four children. Each year Edna gives $13,000 to each of her children, their spouses, and her grandchildren.

But that means that Stella’s family gets three times the amount of gifts that Alan gets, and Andy’s family gets six times the amount of gifts that Alan gets. Over time, this has resulted in a very large disparity in gifts, and Edna would like to equalize matters a bit.

Of course, Edna could leave more to Alan and Stella in her will, but that might be awkward.

An option for Edna is to take advantage of the large lifetime gift tax exemption in effect through the end of 2012.

During 2012, a person who hasn’t made any prior taxable gifts can give away up to $5.12 million without paying any gift tax. A married couple can give away up to $10.24 million. (These amounts are scheduled to be reduced to $1 million and $2 million in 2013.) [Read more…]

Many people who seek estate planning advice are owners of family businesses, and one of their chief concerns is how to pass on the business to the next generation.

The fact is, there are almost as many ways to transfer a family business as there are family businesses. There’s no way to know what’s best for you without a thorough discussion of your goals, your family, and your complete financial picture. However, there’s no question that dealing with a family business is an essential aspect of planning your estate.

Here’s a broad, general look at some of the ways in which a business can be transferred to your children:

► Put it in your will. You can give your interest in the business to your children in your will. This is simple, and it allows you to keep complete control of the business for as long as you live.

There are some downsides to this method, however. Some business owners think that their children will benefit from having an ownership stake in the business while they learn to manage it. Some owners worry that as they get older, they might no longer be competent to fully run the company’s affairs. In addition, there may be very significant tax advantages to transferring all or part of the business while you’re still alive. [Read more…]

If you plan to retire and either move or away from Rhode Island, its a good idea to speak with your estate planning attorney about the estate laws in the state  to which you are moving.

Of course, your estate plan should be updated any time you make a major change, such as buying or selling real estate. But even if you’re not buying or selling anything, it’s wise to review your estate plan when you move because different states have different laws about how estate documents are interpreted.

For instance, New Yorker Rosanne McGathy wrote a will in 1997. She moved to Arizona in 2005, and she passed away several years later. Her will made specific bequests to several trusts for relatives, and left the remainder of her estate to some other relatives and charities. McGathy had other assets that went to people outside the will, including a home she co-owned, a life insurance policy, and an annuity.

Under New York law, if a will doesn’t specifically say who pays the estate taxes, then the taxes are apportioned among all the assets, including the trusts, the home, the life insurance and the annuity. [Read more…]