At the end of 2012, many people scrambled to make gifts and changes to their estate plans in anticipation of big changes in estate tax laws. Thankfully, at what seemed like the final hour, Congress reached a deal that will allay the concerns of many people who have not yet updated their estate plans.
Concerns about the fiscal cliff
Many people were rightly concerned that unless Congress moved to change things, the estate tax would affect far more people and result in much higher federal estate taxes. This was because on December 31, 2012, the amount of assets protected from the federal estate tax was set to revert to only $1 million, in contrast to $5 million.
It is estimated that in the next year approximately 55,000 estates will be subject to the new estate tax. Only approximately 4,000 estates were affected by the current tax rates.
In addition to applying to far more people, the estate tax rate was also set to rise to as much as 55% in 2013 before the estate can be given to heirs. In 2012, the highest tax rate for estate tax was 35%. This percentage jump had many people concerned.
Due to fears about what federal estate and gift taxes would look like in the New Year, many people scrambled to give away money while the $5 million gift tax exclusion still applied. They were hoping this could save their families from having to pay the high estate taxes later.
The new estate and gift tax laws
Thankfully, Congress reached a last-minute deal to avoid the fiscal cliff. The deal agreed upon keeps the tax-free amount at $5 million, but raises the estate tax rate from 35% to 40%.
All in all, this deal is good news for the many people who were unable to arrange their affairs prior to the end of 2012, giving them the opportunity to make gifts and organize their estate plans for at least another year.
The importance of a good estate plan
It is important for everyone to have a good estate plan in place. Not only does an estate plan help ensure that your assets will be distributed to the people you choose, but it can also help decrease the amount of potential estate tax liability. In addition to the federal estate tax, twenty-two states in the United States have estate tax, inheritance tax, or both types of taxes.
Estate taxes can often be minimized or completely eliminated by a good estate plan. People can decrease the value of their estates in several ways, such as by making lifetime gifts.
For those who feel nervous about simply giving their estate money away, many are transferring asserts into trusts. This gives the donors more say as to how and when their beneficiaries spend the money.
Some people are giving their homes to family members through a qualified personal residence trust, or QPERT. A QPERT can allow the donor to use the property even though he or she no longer owns it. The heirs also receive the property at a discounted value since they are not able to use it right way.
With so many changes in the laws recently and multiple options, it is important to have a good estate plan. This will protect your family’s future. An attorney can be critical resource in making an estate plan that is best for you and your family. You may not know where to turn, but an experienced attorney can help you make the right decisions.