It seems like every day there’s another article talking about the repeal of the estate tax.
The estate tax has been repealed and reinstated no less than four times in our history. The most recent repeal was in 2010, and if it gets repealed again in the next year, it probably won’t be long until it comes back from the dead. Currently the federal estate tax is 40% on individual estates over $5.49 million in value, and married couples’ estates in excess of close to $11 million. And the exemption is set to rise to $5.6 million in 2018. The House tax proposal calls for the tax’s repeal in 2024.
The thing is, with proper planning estates exceeding the exemptions are still able to avoid paying the tax. Take, for example, the charitable lead annuity trust (CLAT). Combine it with another vehicle, say the dynasty trust, and you could be home free.
Let’s look at the example of Jacqueline Kennedy Onassis. When she died in 1994, her will left most of her estate to her children. However, the children were intended to disclaim some of their inheritance and direct it to a CLAT that would benefit Onassis’ private foundation. The CLAT would last for 24 years, at the end of which trust period the principal would go to her grandchildren free of transfer tax due to an estate tax charitable deduction. Clever, no?
A CLAT combined with various other strategies pretty much leaves the estate tax toothless. The only people who end up paying it are those who don’t understand the planning vehicles available, or have conflicting tax and non-tax objectives. But there’s really no reason to be paying estate tax if you don’t want to. What’s more, trusts are also popular for many other non-tax reasons.
If you’re ready to learn more about the many reasons estate taxes are “voluntary,” please visit:
Does Estate Tax Repeal Really Matter? | Wealth Management