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Traditional wisdom in estate planning may be changing

Increases in the federal estate tax exemption and in tax rates for wealthy individuals have changed the thinking of some estate planners. New York residents should consider a few suggestions when considering how to pass on their property to beneficiaries upon their death.

The first step is to maintain assets. Low federal estate tax exeemptions and capital gains tax rates traditionally prompted clients to sell assets, pay the taxes and give away as much possible. However, most people will no longer have to pay federal estate taxes. Trusts, once used as a tax-saving mechanism, should also be evaluated. They are expensive to set up and to administer. Unless an individual lives in a state with a state estate tax, simplifying the estate may be the best option.

Elderly individuals in the past gave away large portions of their assets before death, avoiding the estate tax and allowing the recipients to pay only the lower capital gains tax. With the estate tax threshold at $5.43 million for an individual, the gifting strategy no longer is a recommended step for most people. However, the fact that many states have their own inheritance taxes with far lower exemptions should be taken into account.

Many people develop estate plans and then put them aside without another thought until a relevant event occurs. With changes in the federal tax code, periodic reviews and updates may be advisable. It is often helpful to have the assistance of an attorney who has experience in drafting estate planning documents during such a review, as it may help ensure that the documents continue to reflect the particular goals and current circumstances of the client.

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