[dropcap1]If[/dropcap1]you have a net worth over $1,000,000, you may need to take action in the next few days. On January 1, 2013, the estate tax rules are poised to reduce the Unified Lifetime Gift Tax exclusion from $5,120,000 to $1,000,000. Don’t think it’s a big deal? Want to just wait and see? Your inattentiveness to this issue could cost you almost $2,266,000 (based on a 55% estate tax rate with a $1,000,000 exclusion), or $729,000 (based on a 45% estate tax rate with a $3,500,000 exclusion). These are two scenarios flying around Capitol Hill right now, and those who wait for any better news may be taking a gamble.
An additional negative factor regarding estate transfer tax is the fact that most people significantly underestimate their wealth. Wealth includes your retirement savings, life insurance proceeds, house, properties, cash, jewelry, gold, guns, etc. If you own a business, the value may even include inventory, good-will, accounts receivables, the building, tools, computers, cars, trucks, etc. Even your clothing, pots, pans, sofa, furniture, artwork, and collectibles are included in your ‘gross estate.’ When you start to add all this up, it’s easy to see how you could possibly be affected by these lower estate tax thresholds.
A competent estate planning attorney can help you to “complete a gift” during 2012, and lock in the Federal Estate Tax savings while it is available. Some of these trusts (entities used for removing, shifting, or delaying ownership change) can even allow the donor to continue to use the asset(s) during his/her lifetime. These provisions can help ease the mindset of those giving the gift while helping to offset the possible tax liabilities down the road. It also may allow families to retain more of what was earned and built by the previous generation—something most people who have acquired a significant net worth would be happy to see.
While we don’t know the exact path our legislature will take on this issue, one thing’s for sure: By taking action now, you won’t have to kick yourself if new estate tax and transfer tax laws don’t “go your way!” Call my office for more information.
Disclosure: Estate tax planning is a very complicated issue. Any information herein is not intended to be legal nor tax planning advice. For tax advice, you should seek a competent tax professional. For legal advice on estate tax and/or trust entity issues, you should seek legal counsel through a qualified attorney specializing in these matters.