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Down to the wire: Four estate planning tips

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What will happen with estate tax policy? It’s all guesswork, which means estate planners must account for a range of outcomes. “It’s really important to build as much flexibility into your [estate] plan as possible,” says Massachusetts estate planning attorney Brian J. DesRosiers. Experts recommend considering the following tactics to move forward amid the uncertainty.

Use ‘if … then’ planning tactics. The estate planning community is keeping tabs on the estate tax policy debate on Capitol Hill. A plan enacted today must have the flexibility to be revised if the outcome of the policy debate in Washington so dictates.

Buy convertible-term life insurance. The prudent move today in many cases is to buy a term life policy that can straightforwardly be converted to a permanent policy once it’s clear what tax parameters will be.

David Schlossberg, estate and financial planning advisor in East Dundee, Ill., says, “Really, it’s a short-term Band-Aid that can be replaced with a longer-term solution if necessary.”

Beware changing basis and step-up rules. Confusing matters further are step-up rules that apply only this year in computing the tax liability associated with assets transferred in an estate. While there’s no step-up to date-of-death value for assets owned by people dying in 2010, there is a $1.3 million exemption from gains, plus a $3 million exemption on assets inherited from a spouse. But those parameters are currently due to give way in 2011 to more familiar step-up provisions. All this should weigh heavily in deciding on a type of trust and how to configure it, DesRosiers says.

“A client’s heirs could end up getting slammed if they inherit low-basis assets in 2010,” DesRosiers says.

Get more generous with gifting.

“If the client has highly appreciated assets, it might be worth transferring those now,” Schlossberg says.

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