Estate Taxes: A Time to Give and Save

Estate planning is about organizing your assets which can prevent family fights and make sure that your well earned monies do not go to the government after death.  Estate planning can be complex involving various legal documents; but now is the time to take advantage of record tax savings and discuss the options with your Tax Consultant, Financial Advisor and Attorney.

The estate tax is a great wedge issue in a politically polarized time. Take this oft-cited example: If a billionaire dies this year, no estate tax will be paid, but the estate of someone with more than $1 million who dies next year will pay a 55 percent tax on that extra amount. That seems arbitrary if not bizarre, but such is the tax regime unless Congress changes it.

In a time where interest rates are extremely low and the possibility of gaining from other sources is very low as well, tax savings seems to be an even more solid gain than previous.  Proper planning is the only way to accomplish this and with tax laws changing at the strike of midnight on December 31st this year there is no better time to ponder all of your options then now.

Gift Tax is also at an all time low and stands currently at 35%; the lowest it has been since 1930.

In addition to the historically low rate, another reason to make sizable gifts this year is that the values of many assets are still depressed. Long-held stocks, real estate and shares in private businesses could all increase in value, and giving them away now will allow them to appreciate with your heirs and not in your estate…

While the break on the gift tax is a boon to the children of wealthy parents, this year offers an even greater savings for those who want to transfer wealth to grandchildren. These gifts are usually subject to a hefty tax above the exemption rate, called the generation-skipping tax, but not this year. It was linked to the estate tax and has likewise been repealed this year…

In 2009, the total tax rate on gifts to grandchildren — which included the 45 percent gift tax, the 45 percent generation-skipping tax and a 45 percent gift tax on the generation-skipping tax — worked out to 110 percent on the gift. Next year, the total tax rate, assuming no change, will be 140 percent, meaning it would cost someone over $7.2 million to make a $3 million gift.

Source:  The New York Times