Estate Tax

This year brings big changes to estate tax, making it more important than ever to engage in estate planning strategies. One of the primary changes is the exclusion amount which declines from $5.12 million to $1 million. Another is the tax rate which increases from 25 percent to 40 percent.

Not only do estate tax changes result in higher taxation, but also effect portability of the federal estate tax exemption for spouses. As of January 1, 2013 spouses will no longer be able to transfer the unused portion of their exemption.

Married couples ought to seek guidance from an estate lawyer to determine the impact of the portability provision. Any unused federal estate tax exemptions available to surviving spouses could be lost, so it is vital to determine if tax changes affect your current estate plan.

Heirs who receive monies held in individual retirement accounts will be hit hard by taxes if they cash out instead of transferring funds to a new account. While you can't control choices made by heirs, you can protect the IRA by designating beneficiaries instead of transferring ownership to a trust.

When IRAs are placed in trusts the funds have to be cashed out and taxed at the rate payable by beneficiaries. The only way heirs can transfer funds to their own account and defer taxes is if they are able to get the IRS to provide a private letter ruling.

Anyone who has ever worked with the IRS knows it can be a long and complicated process. Furthermore, heirs will likely need to retain an estate attorney to help them win the special ruling. Even then, there is no guarantee the IRS will grant permission for heirs to transfer IRA funds.

Save heirs the frustration and expense and preserve the money you've worked hard for all your life by designating beneficiaries for your IRA account. With that said, heirs must re-title the IRA in a very specific manner so the transfer will be valid.

Since 2013 brings in several changes to estate tax it's more important than ever to establish or update estate plans. Working with an experienced law firm, such as Craton and Switzer helps ensure assets are properly protected while minimizing estate and inheritance taxes.

Estate plans should also be updated whenever major events occur. These include things such as buying or selling real estate or financial investments; the birth, death, or adoption of a child or grandchild; marriage or divorce; establishing or changing guardianship for minor children; and receiving a large inheritance or gift.

Oftentimes, it makes better sense to gift assets throughout your lifetime. This approach helps reduce federal gift and estate taxes for heirs and might allow them to take advantage of the lifetime gift tax exemption.

Annual gifts can be used to pay for medical expenses or establish college education funds using state-sponsored 529 account, as well as Uniform Gifts to Minors Act (UGMA) account or Uniform Transfers to Minors Act (UTMA).

Taking time to determine who will receive assets upon your death will aid in deciding the best estate planning strategies while lessening estate tax. The team at BestEstatePlanningTrusts.com is dedicated to helping clients preserve their wealth and establish protocols to avoid probate and pass along assets to beneficiaries. Give us a call at 562-628-5533 to discuss your estate planning needs.

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Published on February 11, 2013

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