If you are planning to give some of your fortune away at the time of your death, you may want to act now instead. According to Estate Planning, your estate will have to pay taxes the net value s more than the exempt amount. Almost annually, the IRS sets a limit on the amount of money that you can have at the time of your death and still be exempt from estate taxes. Those with more money will probably be more prone to end up with estate taxes that need to be paid. If you are thinking of giving your money away, transferring funds that put you below the limit of exemption could end up saving you thousands of dollars.
At the moment, the federal exemption is $5 million. The tax rate stands at 35%. If Congress doesn’t change the statutes, the estate tax exemption for 2013 will be a mere $1 million. When total estates are added up, many of them will exceed this limit and be taxed accordingly. This means that this year, decedents who leave an estate overt $5 million will be taxed on anything above that amount. $5 million will be exempt. If the exemption drops to $1 million, more people will be affected. The government allows testators to make annual, tax-free gifts of up to $13,000 per recipient.
If you are married, you and your spouse can together double that gift, granting $26,000 to the recipient of your choice. You can also give an unlimited amount of money to educational organizations or health care providers. These gifts can be cash or the “value” of the money in another form. For example, you can choose to pay $13,000 annual interest on a property that you gift a child if you would prefer to do this. If you have a need to give over $13,000 to a recipient, then you need to file a form to the federal government.
This is called a Form 709. Then the gift may be taken from your federal unified gift and estate tax exemption. Once you have used up your exemption money, you will have to pay a gift tax on any more gifts that are above $13,000. This tax is equivalent to the highest federal tax rate in effect. Normally, the gift tax rates are between 45 and 55 percent. In 2011 and 2012, the estate gift tax has been reduced to 35 percent, but in some states the state tax will also be added.
While you may be thinking that giving now will still cost you, the fact is that it will reduce the taxes you end up paying. If you wait to give your beneficiaries their inheritance until after you file, then all taxable gifts that you have made since 1976 will be added back to your estate before the taxes are calculated. The amount you paid in gift taxes will be subtracted from the estate taxes that are due, because you have already paid that money. This can be an incredibly helpful way to aid in reducing your estate taxes.
Essentially, because you are paying the taxes before your death, then your children won’t need to suffer by losing part of your estate. Making choices on what gifts to give can be taught. You will want to give away an asset that is appreciating in value if possible, because this asset might be taxed higher in the future. If you give it away now, then then you will be getting a break on the expense in the future. Decisions about finances can be complicated, so locate a financial advisor or a probate attorney who can help you to make the best decision to save money. Talk to someone today for more information!