An Estate of Flux

Many of the physicians who have planned wisely and accumulated substantial assets are also wise enough to take steps to preserve their estates. But, given the numerous changes to the rules governing the estate tax over the past few years, it has been difficult for many doctors and other high-income investors to keep pace.

In fact, the federal rules governing estates and gifting have changed every year since 2008 — and they changed again for 2011. In late 2010, President Obama signed the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 (TRA) into law. The law finally gave financial planners and investors some clarity on key issues — at least for 2011 and 2012.

The good news: Some of these changes may give high-income physicians more wiggle room as they seek to pass assets along without their heirs paying hefty taxes. But the good news comes with a few caveats. A

doctor who has an estate that may be affected should take time to review — and perhaps modify — any estate plan created prior to this year. Another caveat: the federal government may very well pass new rules for 2013 and beyond, meaning future changes may also be necessary.

Here are a few of the notable changes that have gone into effect, as noted by the U.S. Senate Summary of the TRA:

Estate exemptionThe first $5 million of an estate is tax-exempt, while amounts in excess of that are taxed federally at 35%. This is a big change from 2009, when the federal exemption figure was $3.5 million, and 2010, when there was no estate tax.

The amount that can be given away by a taxpayer over his or her entire lifetime, free from any federal gift tax consequences, to any number of people was set at $5 million for 2011 and 2012. Gifts beyond that amount are subject to a federal tax rate of 35%. Notably, the gift tax exemption has risen from $3.5 million in 2009.

PortabilityThe new rules enable a surviving husband or wife to inherit any unused portion of his or her deceased spouse’s $5 million federal estate tax exemption. The surviving spouse, then, could potentially have a tax-exempt estate of up to $10 million.Lifetime gift tax exemptionsGift tax exclusionThe TRA extended the annual gift tax exclusion, which allows an individual to give away $13,000 to an unlimited number of different people without any tax considerations. That means married couples can gift up to $26,000 annually to a single individual — a tool many couples use to transfer wealth during their lifetimes.

Given these changes, we have been working with many of our physician clients to review and make changes to their estate plans on a case-by-case basis. Families with assets that may be affected should consider asking themselves the following questions we discuss with our clients:

“Does my current estate plan reflect the changes in the law?”If you haven’t revisited your current estate plan this year, it’s time to do so. Your advisor can help you determine whether your estate at its current level may be exposed to taxation, whether elements of your plan still reflect your wishes and whether modifications may be required.“Do the current rules present any opportunities?”Consult with your advisor about the gifting opportunities presented by the $5 million gift exemption and the annual gift tax exclusion. Note that the highest gift tax rate for 2011 and 2012 is 35%, but will rise to 55% if Congress does not modify the rules.

“Have I marked my calendar for another estate plan review in 2013?”Unfortunately, the current rules set guidelines for 2011 and 2012, but not subsequent years. Physicians and their families should keep an eye on developments in Congress — and be prepared to, once again, revise their plans if needed.

The current political environment would suggest uncertainty about the future. The budget wrangling, the discussion about changes to the tax code and the approach of the 2012 presidential election all raise questions for those with sizable estates about exemptions levels, tax rates and other issues.

It will take time and effort for physicians and their advisors to continue to maintain up-to-date estate plans. But a sound approach to gift and estate planning can be one of the most significant tools available for preservation of assets.

Financial Planner and Registered Financial Consultant with Braverman Financial Services in Lancaster, Pa. He can be reached at

Richard Braverman is a Certified

.Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC.

rich@bravermanfinancial.com