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Florida residents should act now to lock in tax exemption

In an election year of uncertainty, one thing is certain from an estate planning perspective: if you have considerable assets, the time is now to create an estate plan in order to ensure your beneficiaries will not receive a large tax bill.

Currently, residents of Florida and the rest of the United States are allowed to transfer $5.12 million per person without a gift or estate tax kicking in. If Congress takes no action to renew that limit, the per-person maximum will revert to $1 million, meaning that every amount transferred over that amount could be taxed at a sizable rate.

Because this is both a presidential and congressional election year, no one is sure what action lawmakers will take before the November elections -- or after.

Already, President Obama has proposed to change the Estate Tax Exemption, as it is known, from the $5 million-plus per person to $3.5 million, or $7 million per couple. The president's proposed bill also would change the estate planning aspects of grantor trusts and grantor-retained annuity trusts.

Because the exemption is in flux, estate planning experts are urging people with significant wealth to take action before the end of the year. Legal counsel or a financial advisor specializing in estate plans can assist in making decisions as to how best preserve assets from taxes.

The options that some wealthy Americans currently are choosing include making outright gifts of substantial amounts of money to both their children and grandchildren. Some are transferring the money through trust accounts that would protect the funds either from divorce or from creditors. Those making the gift want to make sure the money stays in the family.

Others are channeling the money through limited liability corporations or leveraged transactions, such as grantor trusts.

Still, others who are not yet ready to give up the control over their money but still want to keep the exemption are using trusts that benefit spouses. The income and the principal from the trust would go to spouses, who then could leave it to their immediate descendants.

Source: Crain's Cleveland Business, "Lock in the benefits of the current gift tax exemption before it expires," James M. Mackey, July 10, 2012

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