As of this writing, the 2001 Tax Act increased estate exemptions and reduced estate tax rates. If a person dies in 2005, no estate taxes will be owed unless the net taxable estate (including prior taxable gifts) exceeds $1.5 million. This exemption will increase to $2 million in 2006, and then to $3.5 million in 2009. With the present exemption, most taxpayers will not owe any estate tax.

But for taxpayers who face estate taxation, the rates are significant. The maximum estate tax rate is reduced to 48% in 2004 and then drops 1% each year in 2005, 2006, and 2007. The rate will remain 45% in 2008 and 2009 before dropping to zero in 2010. If Congress does nothing to change the law, on January 1, 2011, the exemptions and estate tax rates will revert to the 2001 levels.

The other issue individuals must consider is planning for future care. The cost of nursing home care can quickly wipe out the assets accumulated over the years. It pays to consider how your wealth can be protected for future generations.

Effective estate planning accomplishes the following:

Provides financial stability for your surviving spouse.

Preserve assets for later generations.

Provide care and support for your children or grandchildren, especially minors or those with special needs.

Support a favorite charity, college, or cause with a gift of money, securities, or other property.

Ensure your assets are distributed in a timely manner with a minimum of legal hassle.

Minimize the taxes and expenses that can be incurred when settling an estate.

Provide sufficient cash to meet expenses and avoid the forced sale of assets.

Make certain your family business can survive after your death.

Estate needs can vary widely based on your personal situation, so your plan must be customized to maximize your savings. Before you undertake your estate planning, think about these question:

How important is it for me to control all of my assets while I'm alive?

How much complexity can I deal with?

How much risk am I willing to assume by pursuimg aggressive strategies in my estate plan?

How you answer these basic questions also affects what is the right plan for you.

There are also a wide range of strategies available to individuals to consider with their estate plan, including:

Credit shelter or bypass trusts.

Life insurance trusts.

Modest tax-free gift giving.

Marital trusts.

Maximize tax-free gift giving.

Conservative estate-freezing strategies, such as grantor-retained annuity trusts and intrafamily sales and loans.

Charitable lead trusts.

Generation-skipping transfer tax trusts.

Private annuities.

Aggressive estate-reduction strategies, such as family limited partnerships and restricted management accounts.

Taxable gifts.

There are advantages and disadvantages of each strategy, and some are more suited to certain individuals than others.

Ablon and Company has deep expertise in estate planning and family limited partnerships. We encourage you to talk to us about your specific goals and needs.

These articles are intended to provide resources for the tax and accounting needs of small businesses and individuals. The information contained in this Website is intended to provide general information on matters of interest in the areas of tax and accounting. Users are encouraged to contact us regarding specific situations.