Understanding the existing estate tax parameters at any given time is an important part of the estate planning process. You may have heard that the estate tax is something that only the very wealthy have to concern themselves with, but this is really not the case. If you buy into that notion and ignore the subject entirely your loved ones could be faced with a shocking and costly revelation after you pass away.
The estate tax exclusion is currently $5 million and the maximum rate is 35% for 2010-2012. So the portion of your estate that exceeds this amount will be shaved down by a third unless you take steps to gain estate tax efficiency. To make matters worse, these figures are only in effect through the end of 2012.
Under current laws the estate tax exclusion is going to be reduced to $1 million and the rate will rise to 55% in the beginning of 2013. There are some 8,000,000+ households in the United States with assets exceeding $1 million, and you do not need to consider yourself to be truly affluent to have been able to accumulate $1 million these days.
If you inventory your assets and find that you are exposed to the estate tax you may want to consider the practice of tax-free gift giving in an effort to transfer assets to your loved ones in a tax-free manner while reducing the taxable value of your estate.
Each taxpayer is entitled to a $13,000 per person gift tax exemption each year. As an individual you can give $13,000 annually to any number of gift recipients without incurring any gift tax liability. And if you are married you and your spouse can pool your respective exemptions and give as much as $26,000 to any number of people free of taxation.
If you would like to intertwine tax-free gift giving into a comprehensive estate plan, simply get in touch with a licensed and experienced estate planning attorney to arrange for an informative consultation.