Top income-tax rates have risen to more than 43% for some people, while the federal estate tax affects fewer people because of a $5.25 million individual exemption for estates, up from $1 million in 2003. For couples, that means an estate must be worth more than $10.5 million to face a federal tax, and that threshold rises a little every year. Some trusts that used to be key in planning around the estate tax now are out of favor. Among them: qualified personal residence trusts, which are used to transfer ownership of a home to a family member, and credit shelter trusts, which hold an estate for a second spouse after the first has died. These trusts may no longer make sense for people if they are never going to have $5.25 million. Still, people shouldn’t rush to dismantle their trusts if they have more than $3.5 million in assets, as President Barack Obama has proposed shrinking the exemption back to that level. Many states also have lower thresholds for taxing estates, and the trusts can help protect assets from creditors.
Estate Planners Turn Focus to Income Tax
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