What’s Happening About Estate Taxes? Pasadena’s Best Financial Advisers, Figco, Reveal All

Figueroa & Co., Pasadena’s best known financial and tax consultants, are passionate about providing a caring and professional advice on all financial matters, including estate taxes. We are now well into 2013 and many families and tax, financial and legal advisers are considering decisions made about estates.

Currently, taxes on estates are resting at an eighty year low. When 2010 came to a close, Congress reorganized the gift, estate and generation-skipping tax (GST) percentages to 35% and increased the federal estate and gift tax exemptions plus GST to $5,120,000 up to 1st January 2013. A few legislators would like these rates kept, and established permanently.

This is unlikely to happen but there are two other possibilities:

  • Bush period tax reductions finish at the end of 2012 and lifetime estate tax and exemptions for gift-tax drop to $1 million and 55% will be the estate taxes, possibly 60% for a few householders.
  • Congress follows President Obama’s suggestion to revert to the 2009 situation, where estate taxes were 45% with a personal exemption of $3.5 million.

The present $5.12M personal exemption can be moved between spouses which symbolizes a massive tax break for those families who are wealthy and it gives them the chance to transfer large amounts of assets and other wealth without attracting transfer taxes.

Estate Portability About to Cease

At the moment, executors can choose to shift any unused part of a dead spouse’s $5.12M joint estate, gift or GST exemption on to a spouse who is still alive. With this sort of portability, a couple who is married can, if they wish, shift up to $10.24M of assets while avoiding the need to pay any federally imposed estate tax. Some time in 2013, this portability will no longer exist.

Portability does not take place automatically. At a time when the 1st spouse is no longer living, the appointed executor of the person’s estate will have to present a federal estate-tax return, whether estate tax is still owed or not. This movement finally informs the IRS that you are relocating the unused or possibly partially utilized personal exemption on to the spouse who is still alive. Any return related to estate has to be presented 9 months following the loss of the first spouse. A 6-month extension is permitted.

If some strategic planning has to be done to reduce the value of any taxable estate to below $5.12M, an executor may possibly be able to grant donations to eligible charities and non-profits transacted for you by the executor with the aim of lowering the estate’staxable worth but leaving any heirs with a reduced amount.

There is a way of reducing your taxable estate by not removing the life time exemption. During 2012, the yearly federal gift-tax exemption stood at $13,000 which meant that two individuals who are part of a relationship can give away presents worth $13,000 apiece to any number of individuals in 2012 without any necessity to have to lower the $5.12M estate-tax and gift exemption. The presents or gifts can be shared and can even be used to cover any school expenses or medical expenses.

It is a requirement to remain at $13,000 or below to qualify for the yearly exclusion limitation. In 2012, any gifts that exceeded the value of $13,000 per person do affect the $5.12M lifetime exemption.

You May Want to Think About an ILIT

An Irrevocable Life Insurance Trust (ILIT) might be worth considering as a way of protecting your assets from too much tax. Normally, death benefits from any life insurance policies are not subjected to a federal tax assessment. But, if you have had what is referred to as any “incidents of ownership”, meaning you have been in the position of making payment, beneficiary, cancellation or loan decisions, the proceeds from the policy proceeds may find their way into your estate that are taxable.

This mainly affects unmarried tax payers, although it could happen to married couples as well. One way round this is to initiate an Irrevocable Life Insurance Trust (ILIT). This is actually a trust that has ownership of a couple’s or individual’s life insurance policy or policies.

It is quite exciting when tax changes are around us, as some of us will be winners. Often though, there are legal loopholes that can be navigated successfully and benefit the estate holder. There is only so much we can amass in our minds when it comes to tax changes and if you have some value in your estate then it is worth paying a tax and financial consultant to be both advise on your estate tax issues and find an acceptable solution.