The looming threat of a sharp
cut in the gift- and estate-tax exemption spurred many wealthy families to set
up trusts in a hurry in late 2012.
Now
some families are doubling back to provide trustees with more detail about how
they want their money to be used to benefit heirs.
So-called
letters of wishes have long been common in the world of trusts and estates. The
letters, which aren't binding, typically reflect the priorities parents and
grandparents want trustees to take into account when doling out funds, such as
paying for education up to a certain level.
But the
letters have grown in importance in the wake of the 2012 scramble, experts say.
At the
time, the $5.1 million gift-tax exemption for individuals was scheduled to
expire at year-end and drop to $1 million starting in 2013. In addition, the
top tax rate was set to rise to 55% from 35%.
Wealthy
families feared that if they didn't quickly arrange to shelter assets in
trusts, they could face steep tax bills down the road. Assets placed in certain
kinds of trusts aren't included in a taxpayer's estate.
Congress
finally acted on Jan. 1, 2013, making the higher exemption permanent as part of
a deal to avert the fiscal cliff, while setting the top rate at 40%. (The
current exemption is $5.3 million for individuals.)
By the
time Congress acted, however, many trusts had been put in place using
cookie-cutter documents that could be executed quickly.
Trusts
created at the end of 2012 had many similarities, says Joanne Johnson, managing
director of J.P. Morgan Private Bank's wealth-advisory group. For example, they
tended to be broadly worded and give trustees great latitude, she says.
"Now
people have an opportunity to step back and think about it," she says.
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