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End of Year Estate Planning Tips

As we approach the holidays, estate planning is probably the last thing on your mind. The end of the year is actually a great time to think about your estate plan. Here are some tips for year end planning.

1. Consider making gifts before year end. Gifting to your children or grandchildren is a basic and powerful estate planning tool. The annual gift tax exclusion is the amount an individual can gift to any number of donees without a gift tax consequence. In 2010, you can gift $13,000 ($26,000 for married couples) per donee and there will be no gift tax. A married couple could for example, give $26,000 to their 3 children and $26,000 to their 3 grandchildren for a total of $156,000 . Gifting takes those assets of $156,000 out of their estate, thus potentially reducing any estate tax due if they should die in 2011. The gift tax exemption does not carry over into the next year so if you do not use it before the end of the year, you lose it.

2. Pay education tuition and medical expenses.
Payments for education and medical expenses are not considered taxable gifts and are not included in the annual exclusion of $13,000 or the lifetime exclusion limits of $1,000,000. The payments have to be made directly to the school or the medical provider to qualify for exemption.

3. Fund a 529 Plan. Section 529 of the Internal Revenue Code permits a taxpayer to establish a special account to pay college expenses. Investmenst in a 529 plan accumulate income tax free and later distributions used for qualified educational expenses are not subject to federal income tax.

4. Consider irrevocable trusts. Given that the federal estate tax exemption is set to revert back to $1,000,000 on January 1, 2011, if you are worried about passing away with a taxable estate, there are trusts that you can create in an effort to eliminate or reduce estate taxes. A Grantor Retained Annuity Trust (“GRAT”) is an irrevocable trust where you transfer assets into the trust but retain the right to receive annual payments of a fixed dollar amount for a specific period of time. At the end of that period of time, the remaining trust assets can go to your beneficiaries. Other types of irrevocable trusts which can reduce the size of your taxable estate are Irrevocable Life Insurance Trusts (“ILITs”) and Qualified Personal Residence Trusts (“QPRTs”).

5. Create or review your estate plan. As you think about the upcoming year and reflect about your life (where you are going personally and financially) now is a good time to create an estate plan if you don’t have one, or review the one you have to make sure it still carries out your wishes and goals. Maybe you had a child in 2010, got a divorce, inherited some money, got remarried, started a business, plan to retire soon, etc. These are all good reasons to review what you have in place in the way of estate planning documents and update them if necessary.

The estate planning attorneys at Scott C. Soady, A Professional Corporation can help you with your year end estate planning. It only takes an hour or so to get started on your estate plan and then you can go back to the holiday festivities with peace of mind.

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