Watch Out for Estate Planning Schemes

Reducing your estate now can save a lot of money in taxes and give more to your beneficiaries. Shutterstock

In a little more than one year, high-net-worth individuals will no longer be able to take advantage of the federal estate tax limitations. The limitation on the federal estate tax exemption in 2024 is $13.61 million. A couple can benefit by having an exemption twice as much: $27.22 million.

Because the deadline is close, you must complete your estate planning strategies before the end of 2025. After that, all money more than $1 million above the exemption amount in your estate gets taxed at 40 percent.

When 2025 ends, the federal estate tax exemption will revert to about $7 million, adjusting for inflation. What will happen to this exemption limit after the 2024 election is unknown, but it could be reduced before that time. Reducing your estate now can enable you to save a lot of money in taxes and give more to your beneficiaries.

Some States Also Have an Estate Tax

It is also essential to know that your state may tax your estate. Currently, Money.USNews says 12 states have an estate tax, including the District of Columbia. Six states also have an inheritance tax.

Instead of rushing around to make last-minute gifts and arranging estate planning strategies to preserve your assets, you need to be aware that there are many schemes out there looking to take your money. Many of them sound very good and may work to a specific limit.

Typical Tactics of a Scammer

The people offering them know that you may be in a hurry, and because of it, various schemes to rob you of your money can pop up anywhere. Avoid being in too much of a hurry to check out anyone offering deals that sound too good to be true.

People who are in the scamming business will usually target seniors because they are more easily deceived. They will try to create anxiety to cause you to believe that they have one of the few—if not the only—solutions to protect your assets from government taxes.

One estate planning attorney, and past chair of the Atlanta Bar Association Estate Planning and Probate Section, Tim Curtain, says that scammers typically use contact methods such as door-to-door sales, mailers, presentations, and telemarketing. The company names they use may sound legitimate. They may not even be licensed attorneys.

People will offer some of these schemes—even some lawyers with no estate planning experience. This lack of knowledge may cause them to provide schemes that sound good, but they may be unaware that it is a scheme offered by other companies. To get estate planning right, the wording of your documents must be precise, or your assets may not end up where you want them to go.

The Spousal Lifetime Access Trust

One recent development offered by some estate planning companies is a spousal lifetime access trust (SLAT). Although this trust is legitimate, some of its details could cause problems. Be careful when choosing this option.

A SLAT is an irrevocable trust, which means you no longer have control over its assets. The difference is that your spouse can access it. Most often, there may be other beneficiaries—such as children—but they may not be permitted to take anything out until the death of the non-donor spouse.

The SLAT enables you to gift the trust up to the limit of $13.61 million if you want. It would be a quick way to reduce your estate and not worry about your beneficiaries having to pay federal estate taxes.

Your spouse can access the money in the trust when needed for support. A potential problem with this trust is that if you divorce or she dies, you will not have any more access to the funds. It could be a problem if you were planning on using some of that money for living expenses, medical costs, or long-term care.

Since you cannot change the trust documents on an irrevocable trust, a divorce would create another possibly undesirable problem. Your ex-spouse would still have access to the money in the trust after the divorce, but you may not get any of it.

A SLAT trust, Northwestern Mutual says, has the benefit of not requiring any taxes. Instead, the trust creator pays the taxes on the income earned by the trust, which is like a grantor trust.

If you decide to go with a SLAT, there are ways around the potential problems. Schwab says both spouses can create their own SLAT, making the other spouse the trustee. The Internal Revenue Service (IRS) requires that the two trusts have substantive variations. You can meet this requirement by creating them at different times and funding each with other assets and amounts, giving them unique powers, beneficiaries, trustees, and provisions for termination.

Start Preparing Now

If you need to take advantage of the current federal estate tax exemption, now is the time to get started. With politics the way they are, Congress could lower the exemption sooner.

Other Ways to Reduce Your Estate

If you need other ways to reduce your estate, you may use some of the following methods. You can give gifts of up to $18,000 per person per year. Your spouse can also give gifts of the same amount to the same person. These gifts do not count toward your gift limit. Other ways include giving to charity, contributing to a student’s education or someone’s medical bill, retirement accounts, and more.

Right now, the federal estate tax exemption gives you an excellent opportunity to reduce the tax liability on your estate. You can ensure that your estate planning and setting up a trust will be in good hands when you use an experienced estate-planning attorney. Learn the positive and negative aspects of any trust before completing the deal.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.