Tuesday, August 3rd, 2021

Planning In Light of 2013′s Uncertainty

December 31, 2012 by  
Filed under Estate Planning

Although we are all breathlessly (okay, admittedly some of us more than others) awaiting the upcoming US tax legislation, there are some measures that can be taken no matter the outcome.

Portability – U.S. Citizen Spouse Leaving Assets to U.S. Citizen Spouse Upon Death

Until Dec. 31, 2012, portability is the law, meaning if the estate of the first spouse to die does not use the entire exemption amount from US federal estate tax (any sum that is or will be), the second spouse can use the first spouse’s the unused amount.

Example: At a time when the exemption amount is $1 million John Doe passes away owning only $700,000, which he passes to his spouse. With portability, Jane Doe will have an exemption upon her death of $ 1.3 million, as John’s estate did not use $300,000 of the exemption from US federal estate tax that was available to him.

However, as of Jan. 1, 2013, there is no portability, so whatever is in each estate upon death will be used as is. In the Example above, the $300,000 exemption amount not used upon John Doe’s death would be lost.

Solution: Marital trusts or careful disclaimer planning can be used to ensure that your family gets the full use of both exemptions available. A Marital A/B Trust and related planning splits the spouses’ estates equally wherever possible and uses the entire exemption amount available upon each death.

Assets Located in the U.S. – Guardianship Avoidance

A US Power of Attorney (POA) enables someone you choose (no matter their citizenship) to act on your behalf should you become incapable of managing your financial affairs.

This avoids guardianship, which can be quite costly in court fees, time consumption and scrutinizing court supervision over management of the asset. Courts charge up to approximately 2% per year of the value of the assets in that state for the duration of a guardianship (i.e. for the remainder of a person’s life).  In addition, a guardianship will have to be opened in each state in which you hold assets in the US.

Finally, a guardian must typically be a resident of the state in which the guardianship was opened, meaning no one residing outside of that state will be able to be named guardian, rather a corporate guardian will be named (charging money on top of the court’s guardianship fee already mentioned).

Solution: Under a POA, you can name anyone you wish as the Agent, no matter where they reside. It is not advisable to name more than one person as Agent at a time. A US POA is typically valid for the rest of one’s life, unless revoked. A non-US person may also execute a US POA, if needed.

Assets Located in the U.S. – Probate Avoidance

Any US assets in court probate proceedings will not be accessible for an average of one year. They will be subject to creditors’ claims if the decedent owed money to people anywhere in the world upon their death. The assets subject to the Court probate process will also be subject to court fees that can be a percentage of the value of the assets in the state, and may require multi-state court proceedings.

Solution: Proceed with the estate planning process to best decide how to title your assets to avoid the court probate process. A trust is not the only option and in fact there are options that are more easily implemented and much simpler overall.

Reducing Your Estate – Gifting

Any US person is subject to the US Gift Tax, if such person gives any assets (cash, investments, shares in a company, real estate, etc.) to any person worldwide. However, there is an annual exclusion amount that a US person is permitted to gift to any other person (to any number of separate donees) free of gift tax.

Example: John Doe gifts every year the amount of the annual exclusion amount from the US gift tax to each of his children and grandchildren (25 in total).

The IRS recently issued a new annual gift tax exclusion amount. It will increase from $13,000 in 2012 to $14,000 to 2013. Married U.S. citizens can gift $28,000 to any person in 2013 gift-tax free. The annual exclusion amount is also generation skipping transfer tax free.

Gifts to a spouse who is a U.S. citizen remain exempt from gift taxes due to the unlimited marital deduction. Gifts made to a spouse who is not a U.S. citizen will increase to $143,000 in 2013, up from $139,000 in 2012.

Payments made to a provider for tuition and medical expenses on behalf of someone else can be made in any amount annually, and will be free from federal gift taxes, in addition to the annual exclusion amount.

So as you can see there is yet much to do in the wake of so much uncertainty. We can still prepare. Get started now.


Experienced US Estate Planning Attorney Felicia M. Seaton will help you safeguard your family’s best interests while enduring difficult times. She can help you formulate & implement a comprehensive plan to give you peace of mind. Contact her today: click  here or call 0526182582/US: 3028923336




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