The federal estate tax exemption for Texans and all Americans in 2012 is $5.12 million for taxpayers filing as singles; up from $5 million in 2011.
That exemption, however, is set to fall to $1 million in 2013, with the tax rate for estates to increase from 35 to 55 percent. Experts said that people with sizable assets should reduce the taxable value of their estate and concentrate on estate tax planning. Some of the tips they suggest are:
· Create a spreadsheet that shows assets and current and projected liabilities. The difference is called discretionary equity.
· Break the discretionary equity into the following investment categories: short term (less than one year), intermediate (one to five years), long (five to 10 years), and secular (more than 10 years).
· Place the assets deemed secular into a gifting program and make a gift of those now. Put assets in this category that are tangible and long term, such as collections, works of art or real estate that is to be handed down and not sold. Gift those in one bulk sum or put extremely large gifts in a family limited partnership and make the gift over several years, up to the annual exclusion. This is legal by IRS standards, but anyone considering this route should consult with an attorney to make sure the gifts are executed properly.
· Do not delay in passing on some high-worth items beyond 2012. If an estate totals $10 million and half is cash and half is art, the person inheriting that beyond this year could use most of the cash to pay the estate tax on the art.
With only a little more than half the year left, it is crucial to begin to plan for 2013, when the estate tax is set to increase and the exemption will decrease. Waiting months to see if Congress changes the law could just create a logjam for tax and estate attorneys come the end of the year.
Source: Forbes, “Beating The Possible Estate Tax Increase Without Switching To Cat Food – The Midmill Dilemma,” Peter J. Reilly, May 2, 2012