With several changes to the federal tax code taking effect in 2012, taxpayers in Virginia and elsewhere can utilize many estate planning tips to protect their wealth.
One change in the tax code has to do with giving gifts. Under the unified gift tax, which returned in 2011, taxpayers can give away $5 million during their lifetime without having to pay the standard 35 percent gift tax. As of 2012, taxpayers can give away as much as $13,000 to as many people as they wish without any tax implications assessed to them or to the gift recipients. According to the IRS, "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return," is considered a gift.
Another change has to do with the amount covered by the estate tax exclusion. The estate tax is a tax on one's right to transfer property at their death and is measured by the fair market value of assets at the time of death. The current estate tax exclusion is $5 million, and any estate worth more than that amount is taxed at a higher rate. If Congress does not act to keep the current rules in place, the $5 million estate tax exclusion will fall to $1 million in 2012, and an estate worth more than that will be taxed at 55 percent. For estates affected, there may be alternative ways to reduce federal tax liability.
Taxpayers who fail to create an estate plan can face serious consequences, which may include the government receiving more taxes than are necessary. By planning ahead of time, taxpayers can preserve their wealth, even after their death, so that as much as possible of their estates can pass to loved ones.
Source: Fox Business, "Twelve Tempting Tax Tips to Save Money for 2012," Kay Bell, March 5, 2012