Estate Planning Demystified, and Saving Millions in Taxes on Gifts to Grandchildren

While tackling this during the quiet week between Christmas and the new year might seem extreme, consider this: If your client is transferring $100 million in assets, taking advantage of this very short window of opportunity in the new tax law could save them more than $20 million in taxes, making the net transfer to grandchildren $65 million this week instead of $44 million after Jan. 1.  See “Generation-Skipping Tax: How to Save $20 Million Before 2011.”

The new estate tax exclusion of $5 million for individuals and $10 million for married couples may be a boon to couples with an estate falling into that exclusion—who would pay no estate tax in 2011 and 2012. It is further enhanced by the portability of the estate tax exclusion, which allows a spouse who does not use the $5 million exclusion before his or her death to pass it on to the surviving spouse who can then shield $10 million from estate taxes.

But for couples who have an AB Trust, estate planners will want to revisit the provisions of that trust, to prevent the unintended consequence of income tax liability for assets in a B Trust. For more on this provision, see“Tax Law Holds Serious Implications for AB Trust Holders.”