More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
- IRAs: Eligibility The eligibility rules for contributing to traditional and Roth IRAs are complicated. Learn how to effectively use them in retirement plans.
This is the third in a series of 23 tax tips that AdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
The tax tip today comes from Benjamin Ledyard, director of Wealth Strategies and regional director of the Mid-Atlantic for Silver Bridge Advisors. During his 15 years of experience in wealth management, Ledyard has developed expertise in financial, tax, wealth transfer, risk management, investment oversight, family governance, business succession, executive benefits and philanthropic planning. Ledyard holds a JD from Widener University School of Law and a bachelor’s degree from the University of Delaware.
The Tip: Focus on the Two-Year Window for Gift Strategies
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the Obama compromise tax act passed last year by Congress and whose provisions became effective Jan. 1, opened a window of opportunity for families and individuals to transfer wealth. But Congress didn’t make the changes permanent, according to Ledyard (left).
Ledyard emphasizes that the two-year window is not an estate planning opportunity, but rather a gifting opportunity. “Don’t rush out and change your whole estate plan,” he says. “Update estate plans with the new language in case you die within the next two years.” For the immediate term, he says, focus on the temporary rise of the lifetime gift exclusion from $1 million to $5 million and gifting strategies to take advantage of this window.
One strategy involves pure gifting, absent any fancy techniques. It sounds simple, but Ledyard says a lot of careful thought and calculation must come first:
- Can the donors afford to make the gifts they have in mind?
- They must first make sure their asset base is adequate to support their desired style of life in later years.
- In addition, they should have a “shock account” to see them through at least two years in case of an unexpected life event.
- There should also be sufficient assets to make “aspirational” investments in order to generate more wealth.
- Finally comes the wealth transfer.
With the other elements accounted for, making plans to pass on wealth can take place without creating undue anxiety.
See our Tax Planning Special Report calendar for a list of future topics to be covered.