Dear Clients and Friends,

This letter describes important changes to the estate and gift tax laws which most likely affect your estate planning. 

Some of the Changes

“Permanent” changes to the Federal Estate Tax became effective January 1, 2013.  Among other things:

·         each person’s Exemption from the Federal Gift and Estate Tax (which are unified) is an inflation-indexed $5 million (the indexed amount for 2014 is $5.34 million);

·         each person’s Exemption from the Federal Generation-Skipping Tax is an inflation-indexed $5 million (the indexed amount for 2014 is $5.34 million);

·         “portability” – which sometimes allows a surviving spouse to use the unused Federal Estate Tax Exemption (up to $5 million) of his or her deceased spouse – was made permanent; and

·         the new top marginal Federal Estate Tax rate is now up to 40% (from 35%).

The White House suggested further changes to these and other Estate Tax laws.  The suggestions include reducing the Federal Estate Tax Exemption to $3.5 million, and curtailing or eliminating certain planning techniques important for large estates.  Among the targeted planning techniques: perpetual generation-skipping trusts, and certain trusts – such as GRAT’s and IDGT’s – that discount or freeze the value of assets for Estate and Gift Tax purposes.

Changes to the rules regarding IRA distributions in certain specific situations have been made.

Married same-sex couples in Illinois should have the same tax advantages, rights, responsibilities, and benefits afforded to married heterosexual couples, as of June 1, 2014.

Illinois has instituted an Illinois Estate Tax, collected independently of the Federal Estate Tax.  It has its own marginal rates – up to 16% -- and its own Exemption amount -- $4 million.  It is important to note that the new portability provisions do not apply to the new Illinois Estate Tax.

Your life changes, and changes in the lives of your beneficiaries, are also important factors in evaluation your estate plan.

The Impact on You

How do all of these changes impact your plan?

If your estate is over $4 million dollars, or you are married and your combined estates are over $4 million, you may need to tweak your plan to avoid or lessen payment of Illinois Estate Taxes and capital gains taxes (along with the new Medicare surtax), and to add flexibility to your plan.  The Generation-Skipping Tax Exemption is not portable, and so Generation-Skipping Tax concerns may need to be addressed. Those with larger estates may also benefit from some of the estate planning techniques the White House is targeting for elimination, or “forum” shopping for a more estate-tax-friendly state. 

If you are married and your combined estates are under $4 million dollars, you may be able to simplify your plan due to the higher Federal Estate Tax Exemption.  If your plan includes trusts that were set up strictly for tax savings, eliminating or modifying them can save money and relieve burdens later.  Changes to your plan may also enable you to avoid some capital gains tax (and new Medicare surtax) upon death.

If you have retirement assets, your beneficiary designations should be reviewed for income tax planning purposes.  This is especially true if any of your beneficiaries are adults (particularly if they are far apart in age), if your beneficiaries have descendants, or if your beneficiary designations include a marital or other trust.

If your beneficiaries are no longer minors, you should review the trusts created for them in your estate plan.  In your review, you should consider: if the distribution standards are still appropriate for your beneficiaries, if any of your beneficiaries could benefit from an “incentive trust”, or if any of your beneficiaries is in a relationship or profession that warrants protection of assets.

If you own business interests, your succession plan (to pass your business interests to your heirs) should be reviewed to determine if the plan is still workable and fair, and if any significant changes in the valuation of the business interests warrants any changes to the plan.

If it has been a while since you created your plan, you should revisit your choice of Trustees to be certain your choice is still appropriate, given the age and status of your beneficiaries, the size of your estate, and the nature of your assets.

If you have important messages to impart to your heirs or Trustees, a “Letter of Wishes” may be a good idea.  If you are interested in one, it is recommended that you work with me in its preparation; it is very important that it is entirely consistent with your estate plan.

If the size of your estate or nature of your assets has changed significantly, your plan most likely requires significant changes, as well.

If a revocable trust is not part of your estate plan, you may find it beneficial now. Living trusts are useful in planning for your disability, out-of-state property, and privacy.  They are easier to amend than a Will, if you tend to revisit your documents often for changes. 

If you have not already addressed the transfer of “cyberproperty”, including passwords to major accounts, then you should do so in an organized, clear, and secure manner.   It is important that those administering your estate upon your disability or death have quick, easy, and safe access to your information and assets.


Of course, feel free to call me with questions about your estate, and the impact any changes in the Estate tax regimes have on your particular plan.  Generally, it is a good idea to review your estate plan at least every 7 years.

I look forward to hearing from you!  With best personal regards,

Lorri E. K. Otis

IRS Circular 230 Disclosure: Pursuant to IRS Regulations, neither the information, nor any advice contained in this communication (including any attachments) is intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.



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    Lorri E. K. Otis is the principal of Otis Law Offices, which practices in the fields of trusts and estates law.Contact Info:
    Otis Law Offices
    135 So. LaSalle Street, Suite 2810
    Chicago, IL    60603


    August 2014