The New Focus on Estate Planning

According to the Wall Street Journal, many families are moving their estate planning focus away from avoiding estate taxes, to minimizing their capital gains tax burdens. Nowadays the federal estate tax is not the biggest worry for affluent people who would like to avoid paying taxes when their heirs inherit their wealth.

This is in contrast to how it was during the past ten years. Back in 2004, those with over $1.5 million in assets wishing to pass on their wealth after death, or who made gifts above that limit during their lifetimes, had to pay taxes at the top rate which was close to 50 percent. Married couples were forced to set up trust funds in order to benefit from the full $3 million exemption they were entitled to.

Adding to the complexity of planning was the fact that the tax burden kept changing every year. In fact, in 2010 the tax was completely gone, making it extremely difficult to plan for the future.

Last year Congress changed the estate tax law. Today the top estate-and-gift tax rate is set at a maximum of 40 percent and the exemption was changed to $5 million, with adjustments to take into account inflation, so that today’s exemption comes to $5.34 million. In addition, couples do not need to set up trusts to get the full benefit they are entitled to.

Now that individuals do not have to be so concerned with estate taxes, they can reap meaningful tax savings on capital gains by choosing smartly which assets to hold until death.