LA Probate Law: Estate Tax
Proper estate planning can be critical to minimizing your exposure to estate taxes and to ensuring that plans for dividing your estate among beneficiaries properly takes into account the impact of taxes, probate court costs and other estate settlement expenses. We have the legal and financial experience and resources to help minimize your exposure to estate taxes and other expenses, while ensuring that your estate is administered in accordance with your wishes, and for the maximum benefit of your intended beneficiaries. LA Probate Law comprehensive approach to the practice of law – which includes thriving practices in estate planning, business litigation, and even personal injury, immigration and criminal law – ensures that you will have access to the legal experience and resources for virtually any situation that may arise during the administration of your estate.
What does the Estate Tax limit mean?
The figures just mentioned represent the threshold amount before tax is owed. For example, if a person passes away with an estate worth $300,000 in 2012, then no Estate Tax is due. However, if the person is worth $100M when they pass away in 2012, then it is likely that the estate will have to pay the Estate Tax. It is not a certainty however that a very affluent individual will be liable for the Estate Tax as there are deductions a person may make to avoid the Estate Tax explains LA Probate Law. For example, it is quite common for the rich (or 1% for you Occupy Wall Street sympathizers) to leave a sizable portion of their estate to charity which thereby avoids the Estate Tax if the donation is large enough. IRC §2055(a). The laws in effect when a person passes away are the applicable law. For example, if a person passes away in 2011, the limit is $5M, if a person passes away in 2012, and then the limit is $5,120,000. The current Estate Tax system is set to expire in 2013 and the exemption amount will revert back to $1M then. Consequently, the next election in November 2012 will greatly impact the specifics of the Estate Tax. Democrats are inclined to lower the Estate Tax limit and Republicans are inclined to increase or possibly abolish it. Thus, the victor in 2012’s elections will have the opportunity to craft future Estate Tax legislation.
As of 2010, the estate tax is inactive, after several years in which estates valued at up to $3.5 million have been exempt. However, the tax is scheduled to resume in 2011 on estates valued at more than $1 million. With the fiscal condition of the United States, and increasing concern over growing budget deficits, it is a virtual certainty that estates will face heavy taxation going forward. The choices are few: Die in 2010 or get serious about estate planning. Historically, estates have been heavily taxed, often requiring roughly half their value to settle the estate. For estates valued at between $10,000 and $20,000 the rate has been $1,800 plus 20 percent (or an effective tax rate of 30-40 percent); Prior to 2007, amounts over $2 million have been subject to a rate of up to 55 percent. LA Probate Law, our experienced staff will work across departments and across all areas of the law to develop and execute a comprehensive estate plan, using all of the legal and financial tools at out disposal, including a Living Trust (which can collect and control your assets during your lifetime), a comprehensive Will, gift planning, charitable giving, business structures, and life insurance and retirement account planning. On December 17, 2010, President Obama signed the Taxpayer Relief Act of 2010 (TRA 2010) into law, which overrode the provisions of EGTRRA with regard to estate taxes. As a result of this new law, the pickup tax was not reinstated, and so California will not collect a state estate tax for the 2011 and 2012 tax years. Nonetheless, the provisions of TRA 2010 are set to sunset on December 31, 2012, in which case the pickup tax, as well as the California estate tax, will return on January 1, 2013. Stay tuned for updates as they become available.
The “pick up tax” is a state estate tax that is collected based on the state estate tax credit that the IRS allowed on the federal estate tax return, IRS Form 706, prior to January 1, 2005. The federal estate tax is a tax on any transfer of assets from a deceased person’s estate to his or her heirs, except for transfers to spouses. The starting point for determining estate tax is the “gross estate.” However, your “taxable estate” may often exceed this figure and includes assets such as life insurance policies and the value of certain property or assets transferred prior to death say LA Probate Law. Unfortunately, many people fail to plan and execute a proper estate plan and think by giving a bunch of assets away they will lower the value of their estate. Often, this only creates headaches and tax exposure for all involved. At other times, the value of life insurance or other assets is not taken into account. The result can be an estate valued at far less than its taxable value, requiring a virtual liquidation of all assets just to satisfy the tax burden. Often, this can result in the loss or sale of a family business, farm or other enterprise, because care and planning was insufficient to prepare the estate to meet its tax burden.