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Gift and estate tax changes after 2012 'fiscal cliff' bill, pt. 2

This week's post will continue on last week's topic of what the American Taxpayer Relief Tax Act of 2012 means to life-time gift and estate tax planning. In regards to the portability of exclusion amounts, there are requirements in timing and filing of paperwork in which an estate planning attorney should be consulted as early in the process as possible to avoid losing this important exclusion. The prerequisite filing of an estate tax return when the first spouse passes is important, even if there is no tax owed.

It is recommended that a spouse file it even if he or she is not considered wealthy today as the future remains unknown. As stated in last week's post, the lifetime gift tax and estate tax exclusions are a total amount. Sometimes called a "unified credit," these exclusions can be filed before or after death or a combination of the two. If the limit is exceeded either your spouse or your heirs will be charged at a tax rate of 40 percent. The IRS expects individual taxpayers to keep track of the amounts of these gifts and exclusions.

There are some life-time gifts that will not count. For example, a parent can give his or her child $14,000 per year and it will not count against the life-time exemption amount. This annual exclusion amount can also be doubled by a couple. For example, say you and your spouse wish to give your adult child a $28,000 gift. You can also give your adult child's spouse and his or her two children each $28,000 for a total of $112,000 in one year. Only gifts exceeding this annual limit can be included in the lifetime gift exclusion, currently at $5.12 million.

Many people are wondering with the latest estate tax laws whether they should change their wills. It will depend on how recently you established your estate plan as well as whether there have been any significant changes in your life, such as a divorce or the loss of a child or other beneficiary. Many life events can affect our estate plans making it a good idea to consider any changes in your life in the past year and whether those changes should be reflected in your will or other estate plan documents.

Source: Forbes, "After The Fiscal Cliff Deal: Estate And Gift Tax Explained," Deborah L. Jacobs, Jan. 2, 2013

Our Woodland Hills, California, law firm helps families minimize tax liabilities and maximize inheritances through effective estate planning techniques, including wills, trusts and elder care planning.

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