New estate and gift tax rate changes may affect far more people than just the very richest of Americans in 2013. The exemption line for both gift and estate taxes is scheduled to drop drastically from $5.12 million to $1 million starting in January.
While the new taxes rates may not impact most of America’s middle class, Congress’ Joint Committee on Taxation projects that over 55,000 more estates will feel effects from the change next year. As the new year approaches, folks above the million-dollar mark are lining up to make changes to their estate plans, creating trusts, and making financial gifts before these changes occur. Some strategic moves can be made, with the guidance of experienced attorneys and financial advisers, to split financial assets and gain a significant tax advantage before the laws change.
First off, you can give money away in cash to family members and loved ones. Gifts of up to $13,000 can be made annually to any given person tax-free under the current system. Something most folks are unaware of, however, is that an unlimited number of these gifts can be made each year without incurred tax. Those who fall under the newly proposed tax exemption line can benefit from a sizable chunk of change while calling it a cash gift can quickly shirk an estate tax bill.
Second, putting away money in a trust can provide great asset protection. Transferring assets into a trust gives the donor more control over how the money is distributed. For those shy to part with their money outright, splitting assets in a series trusts can lessen future estate tax liability and spare heirs from much larger bills down the road. One thing to also consider is that state laws on estate taxes differ from federal ones. Twenty-two states currently have their own estate tax, inheritance tax, or both.
With the new tax laws coming just around the corner, anyone trying to take advantage of current federal laws should seek help from experienced experts in their area. Financial advisers and trust and estate attorneys can provide experienced advice on how to best protect assets both before and after changes take effect.
Source: Associated Press, “Coming changes in estate, gift taxes stir ‘frenzy’,” Dave Carpenter, Oct. 24, 2012