eniors with estate planning needs have a limited time to take advantage of the current estate tax law options. Under the current estate tax law, certain options will disappear by December 31, 2012.
The federal estate and gift tax system currently in place includes a number of options for gifting and transferring wealth without extreme taxation. A “lifetime gift” is an amount someone can give to someone else yearly, free of transfer tax. The lifetime gift amount is currently $13,000 per gifted individual. If a lifetime gift exceeds the exclusion amount, it is considered a taxable gift, and taxable gifts are tallied during a person’s lifetime.
Also, as it currently stands, when someone passes away, his or her assets are tallied, and deductions are taken for expenses and items passed to a spouse or donated to a charity. There is also an amount of wealth, called an estate tax exclusion, that can be transferred, tax free, from the decedent’s estate. (Though some have nicknamed it a “death tax,” the amount that is taxed is called a “transfer tax.”)
If the decedent’s estate transfers an amount of wealth below the exclusion amount, after donations, etc, no tax is due on that transferred amount. For 2012, a decedent estate’s federal estate tax exclusion is $5.12 million, with the taxable value of estates and gifts tax rate of 35 percent. However, there is also a federal gift tax exclusion for 2012, also set at $5.12 million, which means that a large amount can be transferred with no gift tax.
For individuals and married couples with large estates, it is advisable that they meet with a qualified estate planning attorney to decide how to manage the entirety of their $5.12 million exclusion prior to the end of this year, either with one of several trust options or through gifting or by staying the course already set out for them.
Regardless of how you may decide to transfer, gift or otherwise manage your assets, the current rates and exclusions are set to expire on January 1, 2013, with federal estate tax exclusions and gift tax exclusions falling to $1 million, with a top rate of 55 percent.
If you have not already done so, work with a well-established elder law and estate planning professional to establish a plan that works for your estate. Be sure to update your listed beneficiary(ies) on retirement accounts, annuities, life insurance polices and any other accounts, to be certain they are included in your estate plans.