Whatever you may think about the federal estate tax, it is indeed in place, and it can have a significant impact on the legacy that you are leaving behind to your loved ones. It is important to know how much you can pass on to your heirs before the estate tax is applied.
HOW LARGE OF A CALIFORNIA ESTATE CAN PASS FEDERAL ESTATE TAX FREE? [Type text] ROY W. LITHERLAND The federal estate tax is controversial in some quarters. There are those who suggest that the tax is unfair, and they offer a number of different reasons to support this claim. First and foremost, the critics argue that the estate tax is an instance of double taxation. Consider this example. A very simple, conservative individual earns a paycheck every two weeks. He is not interested in complicated investments. He puts everything that he earns in a bank account. Whatever he puts in the account is what's left after he pays taxes. He does very well throughout his life, he keeps working until he is 85, and ● ● ● he is very thrifty. There is a great deal left in that account when he The federal estate tax is passes away. controversial in some quarters. There are those He has one living daughter and she is his sole heir. Why should she who suggest that the tax is have to pay a tax on her inheritance? Her father paid income taxes all of his life, and he paid other taxes as well. Why should the event of his unfair, and they offer a death be a taxable one? number of different reasons to support this These are good questions, and those who object to the estate tax make claim. some valid points. ● ● ● Whatever you may think about the federal estate tax, it is indeed in place, and it can have a significant impact on the legacy that you are leaving behind to your loved ones. It is important to know how much you can pass on to your heirs before the estate tax is applied. There is a federal estate tax exclusion. The amount that is excluded in 2013 is $5.25 million. A base of $5 million was put into place for 2011, and there are annual adjustments for inflation. The top rate of the tax is 40%. Gift Tax Some people hear about the estate tax and they decide that they will simply give away their assets while they're still alive. You can certainly give gifts, but for the most part it is not going to provide ● ● ● you with any transfer tax efficiency. This is because we have a This is because we have a gift tax, and it is unified with the federal gift tax, and it is unified estate tax. It carries the same 40% maximum rate. So, if you gave with the federal estate $5.25 million in gifts that are taxable throughout your life all of your tax. It carries the same estate would be subject to the estate tax. 40% maximum rate. We would like to point out the fact that there is an annual gift tax ● ● ● exclusion that exists outside of the unified $5.25 million lifetime exclusion. You can give a certain amount of money each year to any number of people before the gift tax would be applicable. In 2013 this amount is $14,000, but this figure is periodically adjusted to ● ● ● account for inflation. Because of this a There are a couple of additional gift tax exemptions worth married couple would mentioning. You can pay the school tuition of students as a gift, and have a total estate tax these gifts are not taxable. This applies to tuition only, not books exclusion of $10.5 and fees or living expenses. In addition to this you can pay the million using the 2013 medical bills of others as a gift without incurring any gift tax liability. per person exclusion This extends to the purchase of health insurance for another figure of $5.25 million. person's benefit. ● ● ● Married Couples There is an unlimited federal estate tax marital deduction. You do not have to concern yourself with taxation when you're leaving money and property to your spouse because these transfers are exempt from the estate tax. [Type text] You can also give unlimited gifts to your spouse while you are alive free FREE CALIFORNIA of the gift tax. LIVING TRUST REPORT However, simply deciding to transfer everything to your spouse is really not an effective estate planning strategy because your spouse would have to create his or her own estate plan once you are gone. This unlimited marital deduction is not available to someone who is married to a citizen of another country. The federal estate tax will still be looming if you leave assets to a citizen spouse, and the tax man will eventually get his money when the citizen spouse passes away. On the other hand, if you were to leave everything to a non-citizen spouse, this person could just go to his or her country of citizenship and Uncle Sam would be out of luck if the unlimited marital deduction had been One of the inaccurate notions that some people have available to that non-citizen spouse. regarding living trusts is the idea that they are only useful for people with extraordinary financial resources. In fact, The estate tax exclusion is available to every American taxpayer. this is not the case. Because of this a married couple would have a total estate tax exclusion of $10.5 million using the 2013 per person exclusion figure of The primary appeal of living trusts is the fact that they can $5.25 million. facilitate the future transfer of assets to your heirs outside of the probate process. A question often arises: what would happen to the exclusion of a Download our FREE report, married person who passes away? Prior to 2011, the answer to this Living Trusts: Calculating the question would be that the exclusion passes away as well. However, Benefits, to learn: terms contained within the tax relief act that was passed in 2010 made How a Living Trust can ensure your dependent minors are the estate tax exclusion portable for 2011 and 2012. covered How a Living Trust can help you avoid the time and cost of Portability is a term that is used in the fields of estate planning and tax probate How a Living Trust can reduce law to describe the ability of a surviving spouse to use the estate tax the possibility of your wishes being contested exclusion of his or her deceased spouse. A new tax relief act passed at the end of 2012 called the American Taxpayer Relief Act of 2012. This Click to Download Your FREE piece of legislation made portability permanent. However, changes to Copy Now existing tax laws via legislative mandate are always possible. [Type text] About the Author Conclusion Roy W. Litherland If your assets exceed the amount of the estate tax exclusion you must Roy Litherland position them with tax efficiency in mind. Given its hefty 40% top rate, has been the estate tax can significantly erode the wealth that you are passing providing legal services in along to succeeding generations. A licensed estate planning attorney can Santa Clara and assist you as you do what it takes to mitigate your estate tax exposure. Santa Cruz Counties continuously since 1975. References Roy has an undergraduate degree in accounting from Indiana State University, and a Juris Doctor Forbes degree from Indiana University, Internal Revenue Service where he graduated cum laude and won honors in the areas of http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate income taxation and estate and gift taxation. In law school he was -and-Gift-Taxes a recipient of the Dean Faust Award and received awards and Forbes honors in income taxation and estate and gift taxation. http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal -cliff-deal-estate-and-gift-tax-explained/ Roy is certified as a Legal Specialist in Estate Planning, Trust and Probate Law by the California State Bar Board of Legal Specialization. 3425 S. Bascom Ave, Suite 240 Campbell, CA 95008 Phone: (408) 356-9200 www.attorneyoffice.com [Type text]
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