We have recently touched on the topic of gift taxes, but it warrants a longer and more detailed look for Texans who have considerable wealth and must consider asset protection.
Congress has yet to pass an extension to current law, which allows individuals to give a gift of $5.12 million to an heir without the recipient being liable for gift tax. If Congress does not take action, then the lifetime gift-tax exemption will roll back to $1 million. The person who inherits the money would have to pay taxes on the amount above $1 million at a tax rate that could exceed 50 percent.
Tax attorneys and financial planners have joked that they won’t be taking any holiday vacations this year as people race to finish their estate planning by the end of 2012. Still, the experts caution that setting up high-asset trust accounts takes time. Those with considerable assets need to start planning now to pass on their homes, businesses or stock portfolios with the least tax impact.
The current limit took effect at the start of 2011, but the rush is on to take advantage of it. People who work with the wealthy said the number of clients inquiring about the topic rises each week.
Now is the time for families that don’t consider themselves wealthy to take stock of their assets, as well. One woman said she grew up in a middle-class household and when she adds up her parents’ home and savings, it reaches more than $1 million. With her parents in their 80s, her family has started to help them talk about a plan to shelter their estate from federal taxes.
While estate planning can be difficult to bring up in a family, this is a conversation that families should be having, since the time to shield their assets from taxes could be limited, experts said. No one knows what will happen with the tax-exemption limit, especially since this is an election year, so experts said people cannot count on an extension.
Source: Reuters, “Wealthy Also Face a Year-End Gift-Tax Cliff,” Jeffrey Coolidge, June 11, 2012