Estate and Gift Planning

You can't take it with you, but failing to plan for your estate can mean that the government, rather than your heirs, may get the major portion of your hard-earned money.

Estate tax policy has been in flux since 2001, when the Bush tax cuts, known as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) were enacted. It called for higher levels of exemptions and lower tax rates to be phased in over 10 years, with the estate tax totally eliminated in 2010. However, it decoupled the estate and gift taxes, and made other changes in tax law that make estate tax planning more difficult. It also expired for the 2011 tax year, which would made estate tax policy revert to 2001 levels of a $1 million exemption and a 55 percent maximum tax rate. This was revised on an interim basis to raise the per-person exemption to $5 million, indexed for inflation, and re-coupled estate and gift taxes.

The American Taxpayer Relief Act of 2012 provides for a $5.12 million per-person exemption. The 2012 Act raises the highest estate tax rate from 35 to 40 percent. All other current estate and gift tax policies, including the "portability" election and estate and gift tax "unification" system remain in place. Click here to see our Estate Tax Legislation Update.

You may be surprised what your estate is worth. Add up the value of all your assets. Don't forget life insurance which may fall into your estate. If your total value exceeds the exemption amount, you should look into what a few simple planning techniques can save your family at estate time. In addition, there are some very effective estate planning ideas that can also cut your current income tax bill.

Click here to use an estate planning calculator to help you determine what your estate is worth.

Some planning possibilities:

	Gifting Current tax law allows you to give away $13,000 per year per recipient. (This amount is adjusted annually for inflation.) Your spouse may join in the gift even if he or she is not an owner in the transferred asset. This means that you could transfer up to $26,000 per year to each of your heirs. To double the annual exclusion yet again, you may want to include spouses of your children. The person receiving the gift does not need to be related to you. These annual gifts do not reduce your once-in-a-lifetime exclusion.
	Unlimited gifts You can make unlimited gifts to pay for another individual's medical expenses or school tuition as long as your payments are made directly to the institution.
	Property transfer If you have property which is not needed for your retirement, maybe it is a candidate for transferring during your lifetime. If it is a large income-producer, the future income will be taxed to the new owner and not to you, plus the property will be out of your estate.
	Spousal transfer You can make unlimited transfers to your spouse either during your lifetime or through your estate. There are no taxes on spousal transfers, regardless of size. But leaving everything to your spouse may not be a good idea, since doing so fails to utilize the lifetime exclusion amount in the estate of the first spouse to die. Planning will allow you to use the exclusion in both estates, and you'll be able to transfer twice as much to your heirs free of estate tax.

	Last Will & Testament The will is an integral part of most estate plans. It is the legal instrument through which an individual disposes of his property, determines who will manage the administration of his estate, and appoints a guardian for any minor children.
	Durable Power of Attorney This legal document empowers another to act as your agent and therefore do things when you are not able to do them yourself.
	Durable Health Care Power of Attorney/Living Will These documents effectuate the qualified right of competent adults to control life and death medical care decisions.

Contact us via e-mail: evsesqcpa@scullytaxlawgroup.com or by phone: (412) 471- 0777 if you have legal, tax or accounting questions regarding your estate, want more information, or to request our newsletter.

Scully & Scully, Llp
600 Grant Street
Suite 660 U.S. Steel Tower
Pittsburgh, PA 15219
(412) 471-0777 Fax (412) 261-2760
E-mail: evsesqcpa@scullytaxlawgroup.com