Current legislation allows for individuals to gift up to $5.12 million in 2012 without paying any additional gift or estate taxes. However, in 2013 that maximum is scheduled to drop to $1 million. This creates a unique opportunity to gift money to your heirs that may never again be available. Here’s what you need to know about the gift tax:
What is a gift tax/estate tax?
These two taxes are essentially the same thing. Your estate pays a tax based on the value of your estate, minus exclusion. The exclusion is reduced by any gifts during your lifetime in excess of $13,000 per year per individual ($14,000 starting in 2013).
At the moment, the lifetime gifting exemption is $5.12 million. This means that if you were to give $5.12 million away this year (assuming you haven’t gifted previously), your estate wouldn’t pay tax on the gift. Anything more than the $5.12 million would be subject to estate tax. In 2013, the exclusion will drop to $1 million, which means that if you’ve already given at least $1 million over your lifetime, you can’t give any more without triggering estate tax.
In addition, the current estate tax is scheduled to rise from 35% to 55% in 2013.
What to do about estate planning?
If you are positive that your estate, including home equity, investments and all other assets will be worth less than $1 million throughout your whole life, then there’s no need to worry about estate tax. If you expect to have more than $1 million and you haven’t reviewed your estate plan in the past few years, then you should work with your Abacus advisor along with a good estate planning attorney, to avoid significant taxes and answer some of these questions.
Should I gift $200,000 or perhaps a million or more to my children and grandchildren before the end of the year? (Gifting removes both the asset and the future growth of that asset from your taxable estate.)
Should I gift real estate? What about business interests and low-basis investments? What about ILITs, GSTs, GRATs and the other acronyms?
Do charitable gifts count against my exemption?
Savvy planning now can help ensure that your assets are given to the ones whom you care about the most.
