Estate Planning During Coronavirus Outbreak

During these trying and frightening times, we are all aware of our own mortality as we see the infection and death rates of the coronavirus pandemic.

This is especially true if you are concerned about your heirs and dependents at this time. The last thing you want is for your estate to be tied up in probate with no clear path for distributing your assets.

There are many advantages of having a comprehensive estate plan, such as avoiding probate, tax savings, planning for incapacity and providing for minor children ― but perhaps most importantly, is peace of mind.

You can call us to go through what you will need to put your estate plan together, and we can provide you with model plans that you can use as the structure for yours.

Fortunately, most estate planning work can be done at home. You may not be able to physically meet with your attorney, but you can still create, update or finalize your estate plan. Most attorneys are working remotely and are available via e-mail, telephone and video conferencing to advise you.

Documents can be drafted and e-mailed to you for review, or delivered to you by mail or a tracked delivery service.

In general, there are four essential estate planning documents everyone should have in order.


The will

A will can ensure a person’s wishes are followed after their death in many regards. A simple document specifying where everything will be directed after death is essential when there are multiple heirs.

The will should also name the executor, who would be in charge of making decisions about the estate and paying bills. You should let the person you name as executor know you appointed them. At the same time, it’s not necessary to tell all heirs they are included, excluded or what they can expect.


Medical power of attorney

This document is sometimes called a health care proxy. It allows any designated adult to make medical decisions for a person if he or she is unable to do so. It is important to choose a person with trusted judgment who has the ability to stay calm during a crisis while still exercising good judgment.


Durable power of attorney

This document appoints another person as an agent to act with authority and make decisions for the creator of the power of attorney if they become disabled or are not capable of making their own decisions for whatever reason.

No person should take this decision lightly or make hasty choices. The role of power of attorney gives a person long-lasting power. The person chosen should be trustworthy and financially responsible. It is always important to name a backup person, as well.


Living will

Living wills, also known as advanced health care directives, specify the wishes of the creator for their end-of-life care. This includes topics such as life support, resuscitation and feeding.

It is important to sit down and talk to loved ones about individual wishes when it comes to living wills and medical power of attorney forms.


Next step

To ensure that people can finalize their estate plans at this trying time, lawyers are offering to:

  • Conduct the initial meeting by teleconference or videoconference,
  • E-mail and deliver documents for you to review at home, and
  • Make adjustments and finalize the plan by teleconference or videoconference.


State laws govern execution of wills. Some states require two witnesses and a notary, others only one witness. Some states allow for online execution of these documents, while other states don’t.

Witnesses who sign the will should not be party to the estate plan (such as heirs).

Some law firms are still open to provide this service, and some are doing house calls for executing the paperwork (with precautions such as disinfecting ahead of time, social distancing and wearing masks).

But you could also do it in your own home with witnesses present without a lawyer. However, there are rules around who can act as a witness.

Depending on your state, notarization of your documents may or may not be required. Call us to find out if this is necessary for you.

Five Vital Estate Planning Tips

Under current law, federal estate tax applies to all individual estates worth at least $5.6 million.

But, because assets transfer tax-free to the surviving spouse upon the death of a husband or wife, a married couple can shield up to $11.2 million from the federal tax. Only amounts above this level that are still left in your taxable estate (or that of a surviving spouse) are subject to the tax.

However, planning for an orderly transmission of your financial legacy to your loved ones is still important, even for estates too small to meet the estate tax exemption. Here’s what you should do:

  1. Get a will

If you die without a will in place, you won’t be able to determine who gets what assets, nor determine who will get custody of any minors. Instead, the state will do it for you, via your state’s intestate laws, and through a lengthy, expensive and frustrating legal process called probate. This process can delay inheritances for months or even years in complicated cases.

Furthermore, without a will, probate laws force courts to divide your assets among surviving relatives without regard to how close your relationship is with them or their role in your life. Many stepchildren and beloved life partners have been accidentally disinherited by the failure to create a will.

  1. Establish a trust

When you establish a trust to hold money or property, and you do so in such a way that you cannot undo the action (i.e., an irrevocable trust), you move property out of your taxable estate.

Doing so not only sidesteps estate taxes, but also avoids costly probate. This allows assets to effectively pass to heirs free of an estate tax consequence. Meanwhile, it can also help shield assets from the claims of creditors.

Note: It’s not enough to establish a trust. You must also formally transfer ownership of the assets to the trust itself.

  1. Purchase life insurance

When a wealthy family member dies, often surviving members of the family must scramble to raise the cash required to pay federal estate taxes as well as state inheritance taxes. Too often, heirs must sell valuable property and treasured family heirlooms at fire-sale prices just to pay the estate tax.

A properly structured life insurance policy will provide large amounts of cash within days of the death of the insured, that can be used to pay estate taxes, taxes on income with respect to the deceased, probate costs, travel costs, legal fees and other costs.

Often, this type of planning requires insurance planning with permanent insurance products, as term insurance may expire before the insured passes away.

  1. Implement a strategic gifting program

The allowable annual gift you can give to an individual without triggering tax ramifications will be $15,000 until Jan. 1, 2025. This means that you and your spouse can give a combined $30,000 per year to any family members or loved ones – and another $30,000 to their spouse.

  1. Prepare a living will

Your living will, also called an advanced directive, communicates your wishes concerning end-of-life care or care in the event you are incapacitated and cannot make decisions yourself. Combined with a properly drafted power of attorney document, your living will empowers selected trusted individuals with the power to make vital decisions regarding your health care.

If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.

Research Shows Decline in Retirement Confidence among Baby Boomers

Researchers recently found that the Baby Boomers generation is showing a lack of confidence regarding retirement plans. They noted that this trend started in 2011 when they began tracking this group’s views and expectations. Between the two points in time, that generation’s confidence dropped from nearly 45 percent to 35 percent. Although their subjects’ confidence keeps falling, researchers said there were some improvements with important issues such as the number of people who were saving for retirement and the total amount of their savings. In addition to that, they said this generation also showed a great interest in setting savings goals and target retirement ages.

Experts said that one of the most notable findings in their research was the declining number of people who were unsure about what age they would retire. The number decreased to half of what it originally was, and researchers said their findings showed people were retiring later in life. However, they were pleased to see that their survey subjects were looking at the most important elements of retirement and taking steps to develop plans of action as well as looking at retirement more realistically.

Although this generation’s economic outlook is not good, the people are showing hope that their finances will recover and improve. More than 40 percent of participants said they expected improvements within five years, which was up from slightly more than 30 percent one year prior to that. Researchers also found that about 25 percent of participants put off plans to retire. Nearly 30 percent said they would retire after reaching the age of 70. About 10 percent had already reported withdrawing money from retirement plans within the last year. Another 80 percent said they had retirement savings accounts. Nearly 50 percent who had savings accounts had more than $250,000 set aside.

More than 50 percent of Baby Boomers reported having a savings goal, which was a 50 percent increase from the prior year’s tally. From the amount of people with retirement savings goals, more than 75 percent were factoring in health care costs. About 75 percent of this generation said tax deferral was important for retirement investments. Slightly less than 40 percent said they would not be as likely to save if there were no tax incentives or if tax incentives were reduced. Those who use the services of financial advisers are two times as likely to be confident about retirement planning as those who do their own planning.

The survey was based on 800 participants who were between the ages of 51 and 67. While the results showed that seniors improved in this area, it is still important for everyone to ensure they are adequately prepared for retirement. The first step is developing a solid plan, so contact ACBI to discuss any concerns.

401(k)s for the Small Business Owner

Businesses have to compete for talent. Even in down economies, the best employees always have options. One of the things employers must do to keep their best workers is offer them a good, robust retirement plan. That’s where the 401(k) comes in:

The 401(k) is a defined contribution pension plan that allows both employee and employer contributions. By offering a 401(k) plan to employees, you as the employer can provide a powerful retirement benefit at a fraction of the cost of funding a traditional defined benefit plan. Beyond a few basic administrative and setup costs, your only ongoing costs as an employer generally consist of whatever matching contributions you choose to make.

For tax year 2014, qualified employees may contribute up to $17,500. Those aged 50 and older can make additional “catch-up” contributions of $5,500. These limits are much larger than those available for IRAs and traditional IRAs, therefore allowing participants to set aside more money on a tax-advantaged basis than they otherwise could manage on their own. *

The Tax Advantage

Contributions to 401(k) plans are made pre-tax via salary deferral. Balances grow tax-deferred. There are no income taxes due on interest or dividends, and no capital gains taxes due on growth. Money is only taxed upon withdrawal. If the participant makes withdrawals prior to age 59½ the IRS generally charges a 10 percent excise tax. The employer must also withhold 20 percent of the amount withdrawn against taxes.

*Note: In some circumstances, the allowable contributions of highly-compensated employees may be lower – especially if management does not get adequate participation among rank and file employees. Congress designed the 401(k) to benefit all employees – not to be a private preserve for management. It is therefore in the best interests of management to encourage broad participation in the plan. The more workers participate, the more highly-compensated management and owners can set aside within their own 401(k) accounts.

Sole Proprietorships and Couples

If you are the sole employee of your corporation or LLC, or you own and operate your company with your spouse, you may consider the Solo 401(k). These are specially designed to be realistic, workable and efficient solutions for ultra-small businesses with few or no employees other than the owner. Sometimes called the “Individual 401(k), or “One-Participant 401(k)s.”

Like other 401(k) plans, these plans allow business owners to set aside up to $17,500 of their own salary via salary deferral as employees.

Additionally, the employer can contribute an additional 25 percent of compensation as defined by the plan.

Self-Employed Individuals

It is also possible for self-employed individuals to create a 401(k) plan to cover themselves as well. In this case, however, you must also calculate the effect of self-employment tax on your allowable contributions.

For self-employed individuals, your compensation for the purposes of calculating maximum allowable contributions is your net self-employment earnings after subtracting your contributions for yourself and one-half of your self-employment tax for the year.

For more information on 401(k) plans for small businesses, including Solo 401(k)s, see IRS Publication 560 – Retirement Plans for Small Business

IRS Announces More Generous Retirement Contribution Limits for 2015

These days, it’s pretty rare that taxpayers get a break. But they’re getting one for tax year 2015: The Internal Revenue Service announced a series of higher allowable contribution limits and relaxed income rules that will allow many taxpayers to set aside more money for retirement – on a tax-advantaged basis.

Employer-Sponsored Plans

The IRS is raising elective contribution limits for employee participants in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan. Specifically, allowable employee contributions, via salary deferral, will increase from $17,500 to $18,000 as of 2015. Additionally, allowable ‘catch-up’ contribution limits for those plan participants ages 50 and older are also increased from $5,500 to $6,000.

Additionally, total contributions – including the employer match, to a defined contribution plan, such as the SEP IRA, are increasing to $53,000 in 2015, up from $52,000 this year, or 20 percent of compensation (for self-employed individuals) or 25 percent of compensation (for employees), whichever is less. (The difference is due to the effect of the self-employment tax on taxable income.)

The total dollar amount that can be considered when calculating allowable employer-sponsored defined contribution retirement plans is also increasing next year, from $260,000 to $265,000.


Contribution limits for IRAs will remain unchanged for 2015. However, the IRS is increasing the thresholds beyond which IRA contributions become non-deductible, as follows:

For those who participate in an employer’s plan

Deductions for IRA contributions for individuals and couples will be phased out after AGI (adjusted gross income) reaches $61,000, and gradually phases out until AGI reaches $71,000. That is a $1,000 increase from last year. For couples filing a joint return, the threshold rises by $2,000; allowable contributions phase out between $98,000 to $118,000 AGI. At higher levels, you cannot deduct your contributions. However, you can still contribute to an IRA on a non-deductible basis.

Consult your tax advisor for specific advice on how this may affect you.

For those not covered by a workplace plan 

For singles, Deductions are phased out when the couple’s AGI reaches $183,000 to $193,000, also an increase of $2,000 over 2014.

Roth IRA Income Limits Increasing

Income limits on Roth IRA contributions are going up in 2015, to the $116,000 to $131,000 range (for single taxpayers and heads of households, and to the $183,000-193,000 range for married couples. Both are increases of $2,000 over the previous year. If your income falls below these ranges, you can contribute up to $5,500 ($6,500 for those over 50). After that, your allowable contribution gradually falls as your AGI increases. Your allowable contribution reaches zero when it gets to the top of these ranges.

Retirement Savings Credit

The government is also loosening restrictions on qualifying for the Retirement Savings Credit – an incentive designed to encourage lower-income individuals to save money for their retirement security.

Here are the new AGI limits to qualify:

  • Married couples (filing jointly) $61,000
  • Heads of household: $45,750
  • Single taxpayers (and married couples filing separately): 30,500.

The changes come about as a result of the annual cost of living review that affects a wide variety of federal benefits, such as military base pay and Social Security benefits.

Why Married Retired Couples Should Pay Attention to the Social Security Two-Life Benefit

Financial experts said the top Social Security strategy is to maximize the two-life benefit. This strategy applies to retired married couples, and it involves delaying collection of the larger of the two peoples’ benefits longer. This is done until the target beneficiary reaches the age of 70. The lesser of the two benefits is later commenced when that person reaches retirement age, and this helps maximize Social Security payouts.

File And Suspend With this method, the spouse entitled to the greater benefit claims it. However, that person avoids drawing against the benefit. Couples who are financially able to wait to draw the benefit after the top wage earner reaches the age of 66 must allow the benefit to grow at an annual rate of eight percent. That money must remain untouched until the person turns 70. At that point, it is maximized. The spouse who earns less is able to collect 50 percent of the higher earner’s maximized benefit. In some cases, this is more than what the lower earner’s benefit would have originally been.

Restricted Application In some cases, the lower earning spouse may not benefit from the first option. If that individual would receive a more generous benefit than 50 percent of the higher earner’s benefit, he or she would file a restricted application. This type of application lets the lower earner claim a spousal benefit, but it also lets that individual’s benefit grow until the higher earner turns 70. At that point, both individuals can collect their maximum benefits.

Important Considerations Experts also pointed out several other important considerations connected to these strategies. Many advisers think about crossover points with Social Security payouts. However, those crossover points are not relevant for married couples, because the adviser’s goal is not to target the crossover point but the two-life benefit instead. Since a surviving spouse receives a larger benefit and the odds are likely that one will outlive the other, targeting this benefit is key. For people who are single, crossover points are more important to consider. A single person could start collecting early and receive a smaller benefit, or he could wait until later and still receive the same amount. Regardless of the age the person lives to be, he or she will still receive the same benefit.

Eliminating Investing Payout Strategy When individuals expect to pass away at an earlier age, it is more sensible to start collecting benefits early. In addition to this, people who expect to outlive the average mortality point should delay claiming benefits until they reach the age of 70. In the past, it was possible to collect Social Security benefits, use the payout to invest and then pay the Social Security Administration back later. After doing this, a person could start over at a higher rate. However, there are now time frames for paying back benefits received during the span of one year, so that put an end to that type of strategy.

To learn more about options and what choice is best for individual circumstances, call ACBI at 203-259-7580 or visit our website.

Common Estate Planning Mistakes (And How to Avoid Them

Estate planning is complex. There are a lot of financial, legal and family dynamics issues that interlock, and everything affects everything else. Furthermore, the estate tax is still out there, waiting to take a 40 percent chunk out of anything anyone leaves behind over $5.34 million – the current estate tax threshold and percentage for 2014. Estate planning mistakes tend to be big – and it’s worth considerable investment of time and expertise to make sure you get it right. Here are some of the most common mistakes people make with their personal estate planning, and how to avoid them.

  • Waiting too long. It’s not just that sometimes people die suddenly and unexpectedly – although that’s true, too. It’s also that your health can change over time as well. Life insurance is among the most crucial estate planning tools, for example. But getting type II diabetes, or putting on a bit of weight, or a bad blood test or elevated blood pressure reading can quickly make life insurance a much more expensive and less efficient tool. It’s important to start getting the building blocks of an estate plan into place as early as possible, when your health is at its best. Procrastination can make things much, much more difficult for yourself and your heirs.
  • Forgetting to update key documents. Life goes on. Your key planning documents should reflect that. Ensure that your last will and testament, living will, health care directives, life insurance, retirement plan documents, trusts and other key documents name the correct heirs and beneficiaries. You should also make sure any life insurance death benefits are appropriate and sufficient to cover your heirs’ liquidity needs after your death, and/or the death of your spouse.
  • Underestimating liquidity needs of your estate. Closing out an estate is expensive – and relatives often need cash now, to take care of travel costs, hotel costs, and to compensate them for time away from work while they put a home up for sale, liquidate or sell a family business, etc. And that’s before paying any kind of estate tax. Unless the ready cash is there to pay the federal tax, your heirs may be forced to sell valuable assets for much, much less than they are truly worth.
  • Going it alone. Estate planning is a lot more complex than anything you can get from a mass marketed consumer book. Leave the “For Dummies” books for the dummies. Get professional and experienced tax and legal advice, and get it early and often. Estate planning mistakes are often impossible to undo – and wind up costing your family many, many times more than these professionals make in fees.
  • Failing to provide for pets. Nobody wants a beloved pet to wind up in a kill shelter after they die or become disabled and are no longer able to care for them. Arrange for your pet’s new home… and use life insurance, a will provision or other arrangements to ensure resources are there to feed your pet and provide needed veterinary care and a forever home after you’re gone.
  • Hanging on to wealth too long. If you don’t need the money, and your kids are responsible with money, a strategic gifting program can provide immediate, tangible and important benefits to your children and grandchildren, while getting money out of your taxable estate. Gift laws are generally liberal.
  • Accidentally disinheriting stepchildren. Thousands of children live in non-adoptive or informal family arrangements where they were absolutely part of the family, but where there was never any finalized, formal adoption procedure making it legal. The problem is that state intestate laws generally make no provision for these arrangements, even well into the children’s’ adulthood. If you raised and loved children who were not legally your own, for whatever reason, it is crucial to make a will, and to look carefully at named beneficiaries on retirement plan and other documents. If you fail to do this, your state’s intestate laws will send your legacy to your estranged second cousin in prison before it will send a dime to a beloved stepchild or informally adopted child.
  • Overusing jointly-held property. While these can be convenient arrangements in the short run, improperly titling illiquid assets like real estate can cause big headaches when one of the parties on the title passes away. What happens to the ownership interest of the deceased individual? Does it pass to the surviving owner or owners? Or to the deceased individuals’ heirs? If it goes to the heirs, will they have any use for the property? Or would they rather have cash? If the latter, have you looked at some mechanism to provide a life insurance benefit to the co-owner so he or she can purchase your heirs’ interest in the property? This is a common business planning technique, it can apply to property ownership, too.
  • Exposing property to double taxation. Another negative side effect of jointly-held property is this: Unless attorneys are careful with titling, the entire property can show up in the taxable estate of the first owner to die – even if that owner only held a fractional interest. So the estate tax would accrue. And then it would accrue again, when the second owner dies. The same property gets hit twice with an estate tax. A good planner or advisor can help you avoid this issue with the use of trusts. Since a trust doesn’t die, it never incurs an estate tax. And you can control and update trust documents to ensure that you always have appropriate named beneficiaries and change them as you need to.
  • Leaving life insurance to one’s own estate. Once you do that, creditors get first crack at the assets. Probate courts will pay themselves, their attorneys, and your creditors out of anything that goes to your estate first, before your heirs see the first. If you name individual beneficiaries on life insurance, that money goes to them in a matter of days, not months – and it bypasses the IRS and any and all creditors and goes straight to your loved ones.

If you would like to discuss Estate Planning with a professional, call ACBI at 203-259-7580 or visit our website.

How People Can Insure Themselves Against Outliving Assets in Retirement


In the United States, the average expected lifespan of humans keeps increasing as time passes. The average male born today can expect to live about 75 years, and a female born now can expect to live about 80 years. Research shows that people who reach the 65-year age mark are likely to surpass those life expectancy numbers. Men who are 65 can expect to live about 16 more years, and females who are the same age may expect to live about 20 more years. Research also shows that people who reach the age of 75 are likely to live past the age of 85.

Many people welcome the thought of extra years on their lives, but these added years can also bring several challenges. One important issue is for people to decide how they will support themselves financially. To ensure there will be enough money to pay the bills after leaving the full-time workforce, insurers suggest purchasing longevity coverage.

What Is Longevity Insurance?
This type of coverage is essentially an annuity that starts paying guaranteed monthly amounts at a later age. People typically pay one lump sum as the premium when they retire. However, they do not start receiving annuity payments until they turn 85. Between the time of retirement and that age threshold, they must rely on income from other sources. Some examples would be retirement savings, pensions and social security benefits.

When a person knows that he or she will have a guaranteed income source after annuity payments start, that helps relieve some of the worry of outliving retirement savings. If insurers offer this option, it is marketed as one that protects people against longevity risks or insuring their assets against the possibility of outliving retirement income. It is also possible to consider longevity coverage as a simplified form of planning for retirement income. People with this coverage know that at least part of their income will be available to them later on. The following are some important points to consider about longevity insurance:

– These types of policies’ premiums are usually paid in lump sums. If a person buys longevity insurance at the time of retirement, it is likely he or she will have to use some funds from retirement savings to buy it. People must consider whether their savings will be large enough to do this, and they must also know exactly how much they plan to put toward the purchase.

– Before receiving money back from the investment, a person must reach the annuity start date. As insurers perfect their products, many are adding death benefit features as options. This means heirs will receive something in return if the policyholder dies prior to the start date for the annuity. However, this reduces the monthly income that an initial premium payment would buy.

– Since a person is paying for something that will not be possible to use for 20 years, it is important to choose products carefully. Always work directly with an agent, and be sure to discuss all concerns prior to buying coverage.

Not all people who buy these policies will live until the age of 85, so there is no guarantee that benefits will be paid in such a situation. This should not deter possible buyers from purchasing longevity insurance, because companies offer this form of coverage for surprisingly affordable prices. For many people, this is the perfect addition to retirement income. Please call ACBI at 203-259-7580 or visit our website to learn more and to discuss whether this product is a beneficial option for personal needs.

Why it is Important to Start Shopping for LTC Insurance Now


There is an old saying implying that although people pay for long-term care insurance with money, it is ultimately their health that will truly buy it. This is because some preexisting conditions disqualify people from obtaining coverage. Those who are in good health should start the process of shopping for and obtaining long-term care insurance as quickly as possible. The majority of Americans have one or more health issues. These could be anything from anxiety and depression to hypertension or cancer. Even those who have health conditions may qualify for specific types of long-term care insurance, but it is best to discuss options with an agent who specializes in this type of coverage before making a decision. Professional agents have access to a wider variety of options to offer consumers.

Standards for health underwriting vary between insurers. They can also change from time to time, so it is important to work with someone who has expertise and will shop the market before submitting an application. This will help save time and money, and it will lower the chances of being declined for coverage. Good health can earn a person a preferred discount, which will save even more money. In addition to this, the discount is locked in, so it is not possible to lose the good health status and price break even if health issues change in the future.

Researchers recently conducted a survey that showed the percentage of applicants who qualified for discounts and the percentage who were declined. They concluded that it was best to start the shopping and comparison process at an early age, and they said people who are in their 50s should definitely start shopping if they have not started already. There are several preexisting conditions that can make it impossible to qualify. People who have any of these issues are usually wasting their time by requesting quotes:

– Individuals who use crutches, multi-prong canes, oxygen, wheelchairs or walkers.
– Individuals who need assistance with transportation, banking, using the phone or shopping.
– Individuals who require care in a nursing home, assisted living facility, adult day care or in the home.
– Individuals who need help with feeding, dressing, bathing, toileting, bowel continence, urinary continence and transferring between chairs and beds.

There are several specific illnesses and diseases that also disqualify people automatically from being approved for long-term care insurance. These include the following:

– Cystic fibrosis
– Alzheimer’s
– Dementia
– Hemophilia
– Hepatitis C
– Paralysis
– Parkinson’s
– Schizophrenia
– Liver failure
– Muscular dystrophy
– Memory loss
– Kidney failure
– MS
– Cirrhosis
– Lupus

When it comes to health and auto insurance, many high-risk individuals still have options but with higher price tags. Unfortunately, there are no other options for people with any of these disqualifying illnesses or conditions. Everyone should stress the importance of buying this valuable coverage before it is too late. Long-term care bills can pile up quickly and total into the tens of thousands in the span of several weeks. For those who are in relatively good health, now is the time to start shopping and planning on buying long-term care insurance. To learn what options are available, call ACBI at 203-259-7580 or visit our website.

New Estate Tax Rules in Effect for 2014


At the beginning of January 2013, the American Taxpayer Relief Act was signed. The new law outlined changes regarding gift taxes, federal estate taxes and generation-skipping transfer taxes. However, there was one highlighted exception.

Some of the changes include less favorable tax rates, but the gift tax, estate tax and generation-skipping transfer exemptions are more favorable. The federal estate tax exemption increased to $5.12 million in 2012 due to being indexed for inflation. For 2014, the federal estate tax exemption increased to $5.34 million. Estate tax rates for those valued higher than this increased from 35 percent in 2012 to 40 percent in 2013. The lifetime gift tax was the same as the estate tax exemption and increased equally. For 2014, $14,000 is the annual exclusion from gift taxes.

The portability of federal estate tax exemptions for married couples was made permanent for 2014. During and prior to 2009, they had to pass as much as two times the federal exemption using AB trusts. The need for trust planning was eliminated in 2010 when portability was added. Since this provision is now permanent, couples can pass as much as $10.68 million to heirs without federal tax penalties and without planning. However, even if the deceased’s estate is not taxable, the surviving spouse will have to file a Form 706 from the Internal Revenue Service to take advantage of this. If this form is not filed, the unused estate tax exemption is lost.

In 2005, the pick up tax was removed by federal law, and it was not reinstated during the recent changes. This tax was a state estate tax, which was equal to a portion of the federal tax bill. State taxing authorities were responsible for collecting it. If state laws returned to the way they were in 2001, the pick up tax would have resurfaced in 2013, and that would have meant that several states would again collect state estate taxes. However, states without freestanding estate taxes remain dormant in this area, and the pick up tax is not expected to reappear in the near future.

For state estate taxes in some places, special planning is required. Hawaii is the only state that made the state estate tax exemption portable for married couples. With states where there is a difference between federal and state tax exemptions, couples must include special planning to use both exemptions. For generation-skipping trusts, special planning is required. As stated before, the estate tax exemption was made portable for couples. It is important to remember that generation-skipping transfer tax exemptions have not been made portable. If couples want to take advantage of both spouses’ transfer tax exemptions, special planning is required. To learn more about exemptions and the new law changes, please call ACBI at 203-259-7580 or visit our website.