Many people were happy to see the changes in the estate tax parameters that were contained in the new tax relief measure that was passed at the end of 2010. The estate tax was repealed for 2010, but in 2009 the estate tax exclusion was $3.5 million and the maximum rate of the tax was 45%. As a result of the passage of this new legislation the estate tax exclusion was raised to $5 million, and the rate of the tax was shaved down to 35%. This means that only the portion of your estate that exceeds $5 million is subject to the estate tax.
However, these changes are temporary. At the end of 2012 the estate tax exclusion will go back to just $1 million, and the maximum rate of the tax will come in at 55% if the laws stay the same as they are right now. So in reality, if the value of your estate exceeds $1 million and you have every intention of living into 2013 estate tax efficiency is something that should concern you.
A very effective way to transfer assets to your heirs free of taxation while reducing your estate tax exposure is through the giving of gifts. Of course there is a gift tax in place, and it is unified with the estate tax. So though there is a $5 million unified gift/estate tax exclusion, if you use it to give gifts you will have less of it left to apply to your estate. There are however some gift tax exemptions that do not impact the lifetime exclusion.
You may pay the medical bills and/or the health care insurance premiums for any number of people as a gift free of taxation. Every taxpayer is also entitled to pay the school tuition of an unlimited number of students equaling any sum of money free of the gift tax. Plus, you can give gifts equaling as much is $13,000 to any number of people each year without incurring any gift tax liability.
- “Last Will and Testament” Origin - April 1, 2021
- Do I Need a “Durable” Power of Attorney? - April 2, 2020
- Joint Tenancy Pros and Cons - March 31, 2020
Leave a Reply
You must be logged in to post a comment.