Considerations on tax minimization in estate planning, P.2

In our previous post, we began speaking about some considerations regarding tax minimization in estate planning. As we've already noted, lifetime gifting can be a good way to avoid estate taxes down the road, and disposing of appreciated assets in one's will rather than gifting them is a good way to avoid capital gains taxes later on when the asset is sold.

Another tool to avoid taxes in one's estate plan is a 529 College plan. A 529 plan is way to make money grow tax-free, provided the funds are used to pay for either college or vocational school. Donors can give away up to $13,000 per student each year or a $65,000 lump sum in any one year, covering five years worth of giving. The recipient of the money is not taxed if the money is used for qualified educational expenses.

Setting up a life estate for one's home is another tax minimization technique that may work for some people. In this approach, one gives possession of the property to heirs and continues to live there for a period of time. This removes the property from one's estate and locks in its value for purposes of capital gains tax.

One thing worth considering is that taxpayers are allowed a $5 million estate tax exemption for the rest of 2012. While Congress could choose to renew the exemption, it will fall back down to $1 million in 2013 if nothing is done. So there is currently uncertainty from an estate tax perspective.

Navigating this issue, as well as tax minimization techniques in general, is something best done with an attorney who has a sense of the direction things are going and who can apply the law and its uncertainties to your particular situation.

Source:, "Spreading Around Your Retirement Wealth Tax Free," Michelle Lodge, May 29, 2012

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