Unified Credit

Presently, the Unified Credit permits each person, during his or her lifetime, to make non-spousal transfers of assets in any amounts up to $2,000,000 free from estate tax in 2006 and thereafter, until 2009 when the exclusion amount rises to $ 3,500,000. For individuals dying after 2009, the estate tax is repealed. However, in 2011, the exemption will be reduced to $1,000,000 unless the U.S. Congress takes legislative action. For gift tax purposes, the Lifetime Unified Credit amount is $1,000,000 currently and for all years thereafter. Thus, the Unified Credit becomes a valuable tool. Since this credit impacts both on your estate and gift planning, you should consider structuring a plan that will provide the greatest use of the credit.

Lifetime Gifts
Non-Taxable Gifts

Any direct gifts that each of you make during your life that do not exceed $12,000 per year, per person, will be free from any gift or estate taxation (the "annual exclusion"). Any gifts that are greater than $12,000 or are restricted in their use by the donor, regardless of amount, will be subject to the filing of a gift tax return. The purpose of a lifetime gifting program is to reduce your respective taxable estates. An annual gifting program will reduce your estate taxes, based on the value of the gifts made, at your highest estate tax rate. The aggregate future value of the gifts will increase dramatically over the years by compounding as the investments appreciate and generate income that is, effectively, estate tax free.

Irrevocable Life Insurance Trusts

Life insurance policies should not be owned by the insured because if they are, the proceeds of the death benefit is included in the insured's estate. Therefore, a policy should be owned by an irrevocable life insurance trust that can control the disposition of the proceeds upon the insured's death.

Other Documents
Durable Powers of Attorney and Living Trusts

As people age, there are circumstances which require others to act on their behalf. Two devices that allow the individual to plan for the time when they might not be able to act in their own best interests are the Durable Power of Attorney and the Living Trust. They allow you to name people who act for you and state what actions can be taken on your behalf.

The Living Trust can almost be viewed as a "pre-will." In it you determine how you wish your assets to pass at your death, to whom they shall go, and how much any one person shall receive of your wealth. Further, it provides what actions can be taken by the trustees while you are alive. The Living Trust is a trust that by its terms can be rescinded and revoked at any time. As such, it is treated for income tax purposes as your alter ego. It pays no income tax, and files no income tax return. You continue to report all income from any trust assets on your personal income tax returns as if the trust did not exist.

Living Wills and Health Care Proxies

Living wills and health care proxies are designed to address those medical issues that allow or prevent unusual life support measures when the individual has strong preferences as to the course of action to be taken after a major illness or accident leaves them unable to function without life support equipment. The living will and health care proxy allows an individual to specify his or her preferences, and allows the medical establishment to follow those wishes within the bounds of the law, even if such actions will result in the death of the individual. Additionally, the health care proxy names an individual who may legally make all medical and health care decisions on your behalf in the event you are unable to make those decisions.

Additional Planning Vehicles