For parents of a developmentally disabled child, planning is even easier to put off – but more crucial to do.

“It’s an emotional issue,” said Patty McMahon, information and referral coordinator for Arc of Southwest Ohio, an advocacy and service agency for people with intellectual and developmental disabilities. “Families get stuck in the crisis of the day or the moment and try not to think about what’s going to happen when they’re no longer there to take care of their child.”

In fact, 62 percent of parents or caregivers don’t …

If you would like to begin planning your estate, contact Don Thompson today at 312-201-1436.

But that doesn’t mean less-wealthy folks can simply ignore the new law. Married couples in particular need to get acquainted with a special new break for widows and widowers to make sure they are prepared to take advantage of it. Starting this year, a surviving spouse can add any unused estate tax exclusion of the spouse who has just died to his or her own $5 million exclusion. This dramatic change enables spouses together to transfer up to $10 million tax-free.

As of now, this new spousal “portability” (as tax geeks call it), applies only to deaths in 2011 and 2012. It will expire, as will the $5 million exclusion, on Dec. 31, 2012, if Congress doesn’t act before then. But note: President Obama’s proposed budget for fiscal 2012 would make portability permanent. And portability for married couples has so much support that no matter what political currents bring, it is probably here to stay.

Going forward, then, this new concept is something that married couples need to incorporate into their financial planning. It could be relevant at a number of different stages. Here are factors to consider at each.

Updating an Estate Plan
The law doesn’t change the fact that you can give an unlimited amount to your spouse, during life or through your estate plan (provided she or he is a U.S. citizen) with no tax applied. But until now, without proper planning, when the second spouse died anything above the exempt amount not going to charity would be taxed. In other words, the first spouse’s exemption (the new law changed the terminology to the “basic exclusion”) would be lost. Lawyers concocted bypass trusts, also called family trusts, to address that problem without leaving the survivor short of funds.

Here’s how these trusts work: When the first spouse dies, the trust is funded up to the tax-free amount. The trust distributes income and principal to the survivor or other family members (usually the couple’s children) while the surviving spouse is alive, then passes on whatever is left to family. Funds in the bypass trust are covered by the exclusion amount and are not taxed when the first spouse dies. Nor are they considered part of the survivor’s estate, so they are not subject to tax when she dies.

All this is still true, but portability makes it unnecessary for spouses to use bypass trusts solely to preserve the basic exclusion. Some couples will still want trusts for other reasons; the trust has the advantage of sheltering appreciation and could also be helpful in situations where you want to provide for grandchildren or protect assets from creditors.

Making Large Lifetime Gifts
Starting in 2011 it is possible to use the $5 million exclusion to transfer assets through gifts during your life, at death, or through a combination of the two. So, for example, if you have used $1 million of the exclusion to make taxable lifetime gifts, the unused exclusion when you die will be $4 million, rather than $5 million.

The IRS expects you to keep a running tally and report lifetime gifts so it will know how much of the $5 million has already been used up when you die.

Here too, couples get a special break: They can share the basic exclusion during life (this process is called gift-splitting) and give more to the kids now, tax-free. But of course this also reduces how much of the tax-free amount will be available when they die, either for their own use or to be carried over by the survivor.

At a Spouse’s Death
Portability is not automatic, and this poses traps for the unwary. The executor handling the estate of the spouse who died needs to transfer the unused exemption to the survivor. This is done by filing an estate tax return when the first spouse dies, even if no tax is owed. The return is due nine months after death with a six-month extension allowed. If the executor doesn’t file the return or misses the deadline, the surviving spouse loses the right to portability. Spouses should see that the return is filed even if they’re not wealthy today, because someday, who knows?

At a Remarriage
Unromantic and macabre as it may sound, there are situations when estate planning should be a subject of negotiation and a business-like agreement between spouses or prospective spouses. Now that spouses can share each other’s $5 million exclusion amount–either through lifetime gifts or bequests–some couples may also choose to cover how these amounts will be applied, in prenups or postnups.

One issue to consider is whether you want to use your exclusion to leave assets to children from a previous marriage. You can do this with just part of your $5 million allotment–or the whole thing–by leaving assets to them outright or in a bypass trust.

When one of the couple is wealthy, and the other enters the marriage with an unneeded $5 million exclusion, they might agree on an arrangement to combine the two exclusion amounts for lifetime gifts so that the wealthier spouse can give more to his or her kids tax-free. Warning: Don’t give up your tax dowry without legal advice, and make sure it comes from your own lawyer–not one your spouse hired.

Keep in mind, too, that a widow or widower gets only the unused exemption of the most recent spouse to die. So if a widow with a $10 million exemption (half from her late husband) marries a rich man who has used up his $5 million break making gifts and he dies from a heart attack on their wedding night, she’s left with only her own $5 million exemption.

Love may conquer all else, but it doesn’t sway the grim reaper or change the tax code.

Contact Chicago Estate planning attorney Don Thompson today for all of your IL estate planning needs.

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“I don’t think anybody in Congress realized this,” said Michael Gooen, a tax and estate attorney at Lowenstein Sandler. The point is that not only will the $5 million estate-tax exemption ($10 million for a couple) remove the vast majority of formerly taxable estates from the estate tax, but rather that the higher gift-tax exclusion means that people with far larger estates than that — think $50 million, $100 million, and up — have the ability to shift assets out of their estates tax-free while they’re alive. “You are going to see a flurry of estate planning,” Gooen said.

To understand what a big deal these new rules are, go back to the history of the estate and gift tax. The estate-tax exemption had been steadily rising since the Bush tax cuts went into effect, from $675,000 in 2001 to $3.5 million in 2009; after the oddity of no estate tax in 2010, the tax was due to return with an exemption of $1 million in 2011. The gift-tax exclusion, meanwhile, went from $675,000 in 2001 to $1 million in 2002, and had stayed at that level ever since. In both cases, the maximum tax rates levied on amounts above those figures had dropped from 55 percent to 45 percent in 2009. The gift tax fell further, to 35 percent, in 2010. For 2011 and 2012, the estate tax and gift tax have the same exclusions and rates: $5 million and 35 percent. That means wealthy people, who might face the estate tax in 20 or 30 years, or more, can get vast assets — and, more importantly, the appreciation on those assets — out of their estates while they are alive.

“We’ve started calling it the Christmas miracle. It is unprecedented, and the opportunities that we have for people are spectacular,” said Andrew Katzenstein, a partner in the personal planning department at Proskauer in Los Angeles. “It takes everybody closer to estate-tax repeal without using the word ‘repeal’.”

Consider a few ways this would work:

HOW IT WORKS

One: A wealthy person can now pass down millions of dollars before those assets have appreciated, one of the biggest goals of estate planning. “You can now create a $10 million dynasty trust just by writing a check,” Gooen said. “All that appreciation is now locked up in a trust, and you will never pay estate tax or gift tax on it.”

The exclusion for the generation-skipping tax — levied on assets passed down to grandchildren, great-grandchildren and the like — has also been set at $5 million for 2011 and 2012. That gives a wealthy family even more opportunities for extremely long-term planning. As Katzenstein said: “If my kids are going to live another 40 years, you tell me what $5 million is going to grow to in 40 years? You get a lot of leverage.”

Two: It lets you game the federal income-tax rates — and may let you do the same thing with state tax rates. When the estate-tax exemption was higher than the lifetime gift-tax exclusion — as it was in 2009, at $3.5 million compared with $1 million, it forestalled parents from giving large income-producing assets to their kids during their lifetimes in order to shift those assets to a lower tax bracket. The new, looser, rules let you do just that. “The ability to income-shift is back,” Katzenstein said.

Similarly, the larger lifetime gift exclusion may let the wealthy arbitrage state tax rates with their children. Say, for example, someone with a $10 million estate lives in California, and pays federal tax and state tax at the highest levels. If that person can give some income-producing assets to their lower-tax-bracket kids in Nevada, where there is no income tax, they get a double benefit.

Three: The new rules let wealthy families wrap up estate planning that was previously done with low-interest, intra-family loans at rates set by the Internal Revenue Service. Rates for those loans hit historic lows in December, but have risen somewhat since. For March, they are 0.54 percent for short-term loans (three years or less) and 4.30 percent for long-term loans (10 years or more). But, even with low rates, simply getting the loans off the books can be even better. “We can forgive many of these loans,” said Katzenstein, who noted that he has clients that have loaned their kids $1 million to buy a house. “Husbands and wives can forgive $10 million worth of loans with no tax. All these loans that were required to be paid back can now be wiped off the books.”

Other planning techniques, such as the oddly named intentionally defective grantor trust, also stand to gain from the higher gift-tax exclusion. In the case of such trusts, which typically rely on loans to transfer gains tax-free, large amounts of existing loans could be wiped out and these techniques could also be used to transfer far larger amounts in the future. Again, it’s all about the leverage.

OPPORTUNITY TO CHOOSE POORLY

The caveat to all this, of course, is that even with the smaller lifetime exclusion amount, some estate-planning techniques sounded better at the time than they proved to be in retrospect. Bill Fleming, a managing director in the personal financial services division of PricewaterhouseCoopers, points to gifts of high-tech stocks that subsequently cratered or qualified personal residence trusts (or QPRTs) set up during the real estate bubble. Since part of estate planning requires figuring out which assets are more likely to go up, and which to go down, a larger gifting exemption could simply bring with it more opportunities for choosing poorly. As Fleming said: “Let’s not fritter it away like we did with the million-dollar exemption.”

Practitioners were surprised that the gift tax exemption rose so substantially as part of the year-end compromise. But the rules put in effect for both the estate and gift tax mirrored those proposed in a tax bill by Senate Minority Leader Mitch McConnell of Kentucky in September. In the swirling array of congressional estate-tax proposals over the past few years, that bill had itself borrowed heavily from a proposal co-sponsored by Sen. Jon Kyl of Arizona. Kyl and fellow Republican Rep. Dave Camp of Michigan represented congressional Republicans in the year-end tax discussions.

Before a bipartisan compromise was reached, the Obama administration had called for a $3.5 million estate-tax exemption, a top estate-tax rate of 45 percent, and no change to the $1 million gift-tax exemption.

Like other pieces of the tax deal the president reached with Congress in December, the estate- and gift-tax provisions are in effect for two years, opening a window to a flurry of activity. What happens after 2012 remains anyone’s guess.

Contact Chicago Estate Planning Attorney Don Thompson today.

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When a spouse dies, the surviving spouse succeeds to sole ownership of the couple’s marital property.  By virtue of the marital deduction, there is no estate tax.  At the surviving spouse’s death, the property passes to the couple’s children.  But there is no marital deduction at the surviving spouse’s death, and the surviving spouse’s estate is fully subject to estate tax except for that spouse’s exemption equivalent, $5,000,000.  The exemption equivalent of the first spouse to die is wasted.

To be assured of making use of each spouse’s exemption equivalent, each spouse needed a revocable trust, funded with at least the exemption equivalent amount of property.    Each trust would provide that if the settlor (creator of the trust) leaves a surviving spouse, the trust breaks into a marital trust and a credit shelter trust.  The credit shelter trust receives the first amount of property in the settlor’s revocable trust at his of her death up to the exemption equivalent in effect at his or her death.  All of the income of the marital trust is distributed to the surviving spouse.  The surviving spouse may be given the right to withdraw principal from the marital trust.  At the surviving spouse’s death, the remaining property in the marital trust passes either (1) as appointed by the surviving spouse, if the marital trust is a “power of appointment” trust, or (2) to the persons designated in the settlor’s trust document, if the marital trust is a qualified terminable interest property  (“QTIP”) trust  and the settlor’s personal representative has filed a QTIP election for the marital trust with the IRS.

Read full story or contact Chicago estate planning lawyer Don Thompson for help with planning an IL estate.

The key to effective asset protection is to structure your affairs to minimize exposure to potential lawsuits prior to a threatened claim. If steps are taken to manipulate assets after a threatened claim, there can be potential problems with fraudulent convey- ance laws.

This article will set forth a few techniques that are important for preserving and planning an estate while emphasizing asset protection.

It is crucial to review insurance coverage to be certain that it is adequate. Personal liability umbrellas are relatively inexpensive and are a must.

If you own rental property, investment real estate or business assets you should strongly consider forming a business entity such as a corporation – either an S Corporation or C Corporation – or limited liability company. By forming a business entity, you can shield your personal assets from claims.

This is especially important if you have employees. Without a business entity to separate your business affairs and your personal assets, your personal assets would be subject to claims resulting from misdeeds of your employees.

An important form of asset protection and estate planning is the separation of assets between spouses.

Often, it is advisable for one spouse to own the business interests and the other spouse to own the assets that are less subject to potential creditors. If something does go wrong for the spouse involved in the business, the assets owned by the other spouse should be protected.

An important form of asset protection is to own assets that are exempt from creditors’ claims. Significantly, personal residences, qualified retirement plans, life insurance and annuities can be exempt from creditor claims.

Because most individuals want to protect their assets, it is important to coordinate asset protection efforts with estate planning. By coordinating these efforts, the family’s assets will be better protected from creditors and estate taxation of the assets can be minimized.

For help with IL estate planning contact Chicago estate planning lawyer Don Thompson.

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Talk to estate attorneys and advisors and they laugh at their own predictions for the estate tax, whether past or future. With so many competing proposals, and heated rhetoric on both sides, it’s hard to see what will happen in the 13 weeks remaining till yearend. “It’s been an experience not unlike the market experience, where fear has taken hold and analytics have taken a backseat,” says Frank Dubreuil, national managing director at Bernstein Global Wealth Management in San Francisco.

The issue is, of course, that if Congress doesn’t act, either before yearend or retroactively in 2011, the estate tax will come back at a level that no one seems to want. Where the exclusion was $3.5 million (that’s $7 million for couples) in 2009 — a level at which it affected relatively few households — it will be $1 million (or $2 million for couples) in 2011. The tax rate would also rise, from 45% in 2009, to 55% in 2011.

Competing proposals in Washington place the exemption levels and tax rates all over the map, as Republicans (many of whom would like to permanently repeal what they refer to as the “death tax”) and Democrats (who want it reinstated) fight it out. The Obama Administration wants to return the estate tax to its 2009 level, with a $3.5 million exclusion and 45% rate.

Many states also levy their own estate taxes with a variety of rates and rules, which adds to the complexity for anyone trying to come up with a financial plan.

Despite the flux, there are numerous moves that wealthy people can take to minimize the impact of the estate tax on their heirs down the line. That’s because today’s depressed valuations let you get assets out of your estate and over to your kids or other beneficiaries with less gift tax, while low interest rates create additional opportunities for those who use trusts in wealth planning.

“It’s a lot easier to prepare for whether the exemption is $1 million or $3.5 million than it has been to prepare for the no-estate tax year, which we are already three-quarters of the way through,” says Cheryl Hader, an estate attorney at Kramer Levin Naftalis & Frankel in New York.

Give it away while you’re alive. Even for those who don’t have enough assets to consider more complicated strategies, this is the simplest thing to do. The rules permit anyone to give away up to $13,000 per beneficiary tax-free this year. That means a couple with three children could give $26,000 to each of their three kids, excluding a total of $78,000 from gift taxes (and getting that $78,000 out of their future estate).

Beyond that, this year, there are extra advantages to gifting while you’re alive. Even when gift and estate taxes are at the same tax rate, gifting (which has a $1 million lifetime limit) is a better deal. That’s because the government tallies the bill exclusive of tax for gifts versus inclusive of it for estates. In a simplified example, what that means is that if you had $3 million in assets and a 50% tax in both instances, you could give away $2 million while you were alive and pay $1 million in gift tax, or you could die with that $3 million and pay $1.5 million in estate tax. This year, however, the gift tax is at a low 35% rate, creating additional opportunities for many people.

Set up a trust. The acronyms can be enough to make you want to run screaming from the room: GRATs, CRATs, CLATs and the like. But these trusts, in general, are worthwhile estate-planning tools.

A GRAT, or grantor retained annuity trust, is an irrevocable trust designed to transfer the appreciation on assets contributed to it with minimal or no gift-tax consequences. It’s a popular strategy for transferring wealth in a low interest-rate environment, and the Internal Revenue Service rate that applies to GRATs is just 2.0% for October, a historic low. If the assets in the trust appreciate more than the annuity payments you are required to take out of it — and the odds of that are high with a low “hurdle” rate of 2.0% — the excess goes to your beneficiaries tax-free. (If it turns out the asset has appreciated less than the payments to you, the trust fails; the asset returns to you, and you can start another GRAT and try again.)

One of the most popular strategies for GRATs, which is designed to take advantage of today’s market volatility, is to set them up in rolling, two-year intervals. Research by Bernstein Global Wealth Management has shown that over the long term, a strategy of rolling two-year GRATs funded with publicly traded stocks is almost always preferable to a long-term GRAT because it captures the market volatility and because it keeps more of the funds committed to the strategy. “If you could do rolling two-year GRATs indefinitely with marketable securities, you would choose them,” Dubreuil says. “Rolling two-year GRATs take advantage of the volatility in the market, while longer-term GRATs take advantage of locking in a low rate for life expectancy.”

There’s been much talk of placing limits on GRATs, which would require longer terms, but thus far that legislation has failed to pass. But the flux and the fact that GRAT limitations still lurk as a possibility in the background complicates the decision-making process, Dubreuil says. The challenge, he says, is that the two-year rolling strategy “requires time to produce successful results in a very effective way.” So if legislation were to crack down on this strategy over the next few years, it may turn out to be preferable to lock in today’s historically low rates for the long term.

Check your will. It’s one of the most unpleasant tasks, so it’s easy to put this one off, even though it’s the single most basic thing you can do for estate planning (and even those who don’t have enough money to worry about estate taxes should still keep their wills up to date). With the estate tax flux, it’s especially important that wills be written in a way so that they say what you mean, regardless of what the estate-tax laws happen to be at the time of death. One way of maintaining flexibility is to permit beneficiaries to “disclaim” assets after death. As lawyer Hader puts it: “I allow the client to do post-mortem planning.”

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Over the course of our discussion, Bill told me a close friend from his university days had called him last month. The friend’s father passed away back in March, leaving a sizable estate. Unfortunately, that estate was now in the process of an extensive legal battle, as four siblings (from two different marriages), a widow, and an ex-spouse bickered and fought over their share of the pie.

“What a mess,” Bill said, shaking his head as he waited for his grilled salmon. “When I go, I want things to be well-organized – easy to deal with.” Bill paused for a moment before looking at me and adding: “And I want everybody to know exactly what I want done with my money.”

Bill’s concern is well founded. In my experience, there’s a direct relationship between the size of one’s estate and the potential for conflict. The higher the stakes, the higher the chances for litigation.

Unfortunately, as I told Bill, there is no such thing as a litigation-free estate. Even the most well-organized, well-constructed estate may be challenged by disgruntled heirs or creditors. That said, there are things high-net-worth individuals can do to discourage litigation, and diffuse inter-family conflict before it leads to courtroom drama.

Read further or Contact Chicago, Illinois estate planning and probate lawyer to learn more from the best.

To be enforceable each party should have separate legal counsel, each party should make full disclosure of all income, assets and other material facts, and no duress should be involved. This is also called a pre-nuptial agreement.

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A will does not affect these accounts. They pass to the person designated in the bank records regardless of any will or probate court action. Whether or not such an account has been created depends on the agreement with the bank. Sometimes these accounts are called "Pay on death" accounts. Sometimes they are called "Totten Trusts". Sometimes the account ownership designation merely says "X in trust for Y", although there is no trust agreement.   

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Forbes.com has teamed up with the authors of Ernst & Young Tax Guide 2006 to develop a series of tips to help you avoid paying more tax than necessary. The circumstances of your situation will determine if you qualify, so review the tax code and check with your tax adviser.

Here are ten things you need to know about estate and gift tax planning.