There’s no such thing as an idle retirement for those who have assets to leave to their children, grandchildren or associates. Retirement, in fact, is the time when Texans and others across the United States should solidify their estate tax planning.
There are things people can do in their estate planning to guarantee that heirs will be subject to as few federal estate taxes as possible. A tax attorney or specialist should be called in to assist to offer advice on tax laws.
Here are some things to think about when making an estate plan to minimize taxes:
· Understand the difference between a gift and an inheritance. Anything that has appreciated in value, such as a home or a work of art, should be left as an inheritance. If the house was gifted to an heir and then sold, the heir would have to pay capital gains tax on the sales price, minus the original purchase price. The taxes could be considerable.
- Understand the gift law. There are no tax liabilities for either the giver or recipient if the amount is $13,000 per year or less. This is a good way to transfer money, tax free, to children, grandchildren or any other recipient. Each person can do this, so a married couple legally could transfer up to $26,000 per year to each child or grandchild.
- Stay aware of the changes to the tax law adopted by Congress. For the past two years, federal law has granted an exemption on the first $5 million of an inheritance with a 35 percent tax rate above that. If Congress does not pass the Economic Growth and Tax Relief Reconciliation Act, the figures will change to a $1 million exemption and a 55 percent tax rate.
- Utilize a 529 plan for college funds. Money put into a 529 plan is not subject to taxes on the growth, as long as it is used for college or vocational school. Donors can put up to $13,000 per year, or a lump sum of $65,000 once every five years, into the fund.
Source: CNBC, “Spreading Around Your Retirement Wealth Tax Free,” Michelle Lodge, May 29,. 2012