LA Probate Law All about Gift Tax
In general, a gift tax is owed whenever an asset transfer occurs in which the donor does not receive a comparable return of assets in exchange. In estate planning, problems often arise when a person preparing an estate decides to begin giving assets away in an attempt to avoid estate taxes after death. Unfortunately, such sudden charity can leave an estate open to taxes it cannot pay. Conversely, the proper planning of an estate using planned giving — either to friends, relatives or qualified charitable organizations — can be an excellent way to minimize taxation and help ensure that the value of your estate is maximized for the financial well-being of friends and loved ones. At LA Probate Law, our comprehensive approach to estate planning can help clients prepare for the proper administration of their estate, minimize estate and gift taxes, and help secure your estate for the benefit of your intended beneficiaries.
Estate & Trust Planning
By utilizing a Living Trust or other estate-planning tools, many obstacles to planning for the final administration of your estate can be handled while you are live, thus minimizing the chances that taxation issues will devalue or eliminate your state upon death. For example, determining “Fair Market Value” is often an area in which problems can arise involving the gift tax in cases where real estate exchanges hands for less than the proper valuation of a property. In other cases, the liquidation of a gift can have unintended tax consequences for the beneficiary; taxes must be paid on proceeds based on the fair market value of a gift. Having qualified LA Probate Law assist you in preparing your estate for distribution can be critical to protecting your estate and ensuring tax complications do not devastate loved ones counting upon your assets for their future financial well-being.
2012 Gift Tax
The 2010 Tax Relief Act keeps the gift tax rate at 35% for 2011 and 2012, but the gift tax will be significantly different in 2011 and 2012. (1) Higher exemption. The gift tax exemption for 2011 and 2012 is increased from $1 million to $5 million for individuals. So, individuals who used their entire $1 million gift tax exemption prior to 2011 will be able to gift an additional $4 million in 2011 and 2012 without incurring a gift tax. (2) Unified exemption. The gift tax exemption will be reunified with the estate tax exemption, starting 2011. (3) Indexed for inflation. Starting 2012, the gift tax exemption will be indexed for inflation. (4) Portable. In 2011 and 2012, the gift tax exemption will be portable. Portability allows a surviving spouse to use the amount of estate and gift tax exemption not used by the decedent spouse. Here is a summary of what TRA 2010 provides for gifts made in 2011 and 2012 and the estates of decedents who die in 2011 or 2012, as well as some problems created with regard to state estate taxes and generation-skipping trusts: Sets new and unified estate tax, gift tax and generation-skipping transfer tax exemptions and rates says LA Probate Law. For 2011, the federal estate tax exemption will be $5 million and the estate tax rate for estates valued over this amount will be 35%. The estate tax has also become unified with federal gift and generation-skipping transfer taxes such that in 2011 the lifetime gift tax exemption and generation-skipping transfer tax exemption will be $5 million each and the tax rate for both of these taxes will also be 35%.Indexes estate tax, gift tax and generation-skipping transfer tax exemptions for inflation in 2012. The estate tax, gift tax and generation-skipping transfer tax exemptions have been indexed for inflation for the 2012 tax year such that each will be increased from $5 million to $5.12 million beginning on January 1, 2012.
Example of 2012 Gift Tax
Therefore, to give one example: You could give a gift of $13,000 a year each to your daughter, son, mother, a friend, a cousin, your Accountant…without having to file a gift tax return. Your spouse could do the same to the same people if you wish in the same year. Therefore, if you both gave gifts to the same people, they will receive a gift of $26,000 in that year and they can still receive gifts from more people within that year as long as it’s different people giving them the gifts. If you go over the $13,000 a year limit per donee, then a gift tax return will be necessary to file….and our firm will be able to handle that for you. The gift tax in 2011 and 2012 will be levied at a rate of 35% and with an exemption of $5 million that is portable. People who were once limited by the $1 million gift tax exemption will be able to gift up to the new limit. The $5 million exemption can be stretched with proper estate planning. Congress did not change the rules for grantor retained annuity trusts or for valuation discounts. It had been threatening to significantly restrict these estate planning tools. So, they can be used in 2011 and 2012 (so far). At LA Probate Law, we advise anyone considering their estate plans to do so with the qualified advice of an estate planning professional. Few mistakes can be as costly as those involving the Internal Revenue Service. If you are considering making estates gifts during your lifetime, or need to prepare for the proper administration of your estate, contact us for a confidential consultation.