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Death No Longer So Taxing – So It’s Time To Do Some Planning

Two recent developments concerning death taxes applicable to Indiana residents have changed the estate planning landscape dramatically for Indiana farmers and other Indiana residents.

First, at the federal level, the United States Congress at the very end of its 2011-2012 session (actually January 3, 2013), fixed the individual exemption against the federal estate tax at the January 1, 2011 level of $5M per person, with indexing for inflation from and after January 1, 2011, making the exemption $5.250M per person for persons dying in 2013.  This exemption also applies to lifetime taxable gifts.  The same legislation also continues the provision (first effective January 1, 2011) that provides that a surviving spouse may inherit the unused federal estate tax exemption of the first spouse to die.

Second, the Indiana Legislature in its 2013 session repealed the Indiana inheritance tax retroactively so that there is no longer Indiana inheritance tax applicable to Indiana residents who die after December 31, 2012.

These changes open up many new planning possibilities.

First, and perhaps most importantly, there is an opportunity in many instances for simplification of existing estate plans.  There may be many married couples who have estate plans that now call for creation and funding of a trust at the death of first of spouse for the lifetime benefit of surviving spouse.  These trusts may no longer be necessary, particularly for spouses whose collective assets are less than $5M or less in value.  (On the other hand, there are some good reasons for continuing the use of such trusts that also need to be discussed.)

Second, many Indiana residents who may have felt compelled to make lifetime gifts in order to avoid or reduce the Indiana inheritance tax, or who needed to arrange for a generation of cash at death to pay Indiana inheritance tax, will no longer need to feel compelled to do so.

On the other hand, the ability to make gifts during life of up to $5.250M without incurring any federal gift tax continues to create planning opportunities for individuals whose assets exceed $5.250M and for couples whose collective assets exceed $10.5M.

Finally, in many situations, there is now greater opportunity to focus solely on one’s objectives for how and to whom assets are to be transferred at death without being constrained by concerns about how to minimize or pay death taxes.

This is a good time for Indiana farmers and Indiana residents generally to schedule an appointment with their estate planning advisors for review and update of existing estate plans to make appropriate adjustments in light of these changes.