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Why upstream planning can be beneficial

Estate planners in Georgia may have heard of something called upstream planning. Those who implement this strategy will first give an asset that has significantly appreciated in value to someone who is older than they are. The asset is then given back to the individual who originally owned it, and when the asset is returned, the person who receives it gets a step-up in basis.

Upstream planning has gained in popularity because the lifetime gift tax exemption increased to $11.18 million with the recent changes to the tax code. Prior to the change, the exemption was far smaller. Typically, individuals didn't want to use most or all of their exemption by giving assets to someone who is older than them. While any asset could be used for upstream planning purposes, not all assets should be managed in this manner.

For instance, it may be necessary to pay for an appraisal of artwork or other items that may have a subjective value. The cost of paying for the appraisal and other potential legal costs could negate any tax savings realized. Furthermore, the person who receives the assets should also be below the estate tax exemption limit.

An attorney may help clients create an estate plan that helps to meet their goals. For some, this means minimizing state or federal estate tax. Alternatively, individuals may be more concerned with giving to charity or caring for a special needs child. Estate plans will ideally be reviewed regularly by an attorney to account for life events, such as a divorce or the birth of a new child or grandchild.

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