Estate Planning During the Weak Economy

Staff Writer, Jan 20, 2009

Today's economy has everyone filled with apprehensive uncertainty about what the future holds as far as income and capital gains taxes, estates, and the knowledge of estate planning. The market environment is particularly odd with very low asset values and interest rates which add to mounting pressure. When one examines his estate and begins planning and making provisions for it, normally the biggest concern is how the beneficiaries can get what they have coming to them without Uncle Sam getting an equal share. Since Uncle Sam is not a beneficiary he needs to be cut out as much as possible and this very well can be done with just a bit of knowledge. You make transfers that embrace techniques that add leverage which in turn will reduce both gift and estate taxes.

While this downturn in the economy might make many feel like this is an inappropriate time to focus on what you will give and to whom in the event of your death, experts claim that this is the very best time to do it. A recession or even a depression paints a much clearer picture for those teetering with estate planning. If your estate is likely one of those that will be subject to federal estate taxes continue making annual exclusion gifts. Beginning on January 1, 2009, you can give away $13,000 worth of gifts per person, free and clear.

If you re using your head then you will give securities that are depressed in value because when they bounce back, and they will, they will already be the property of your beneficiaries. Gifts under $12,000 for 2008 and $13,000 for 2009 do not have to be reported and are not counted against the annual $1 million exclusion limit. You can give more so long as you file a gift tax return reporting the amount by which the gifts exceed the exclusion amount. No gift tax is due until taxable lifetime transfers exceed $1 million.

Another good option is to start loaning out some money to your family while making sure that they are low interest loans. Let them use these loans to buy homes, pay for college, or maybe to start their own business. The reason for this is because you avoid the gift provision all together, hence offering a substantial benefit to your loved ones at a low interest rate and preserve your gift and estate tax exemption.