Don't go it alone
While current federal tax rates and exemptions related to inheritance are favorable to wealthy individuals and families, many factors can complicate and add costs to the passing of assets from one generation to another.
A taxpayer should not attempt to manage key transfer decisions without advice from an attorney, accountant or other financial professional who has experience in estate planning.
Be sure to talk with an adviser about the potential future impact of income taxes on assets to be transferred and about the possibility of a “clawback,” or future estate tax that could take back some of the tax-free benefits of 2012 gifts.
Here are the key provisions of current tax law that affect estate planning. These provisions are slated to expire at the end of 2012.
Federal estate tax exemption this year stands at an all-time high of $5,120,000 per taxpayer. (The amount represents an inflation adjustment from the $5 million applicable in 2011.) The exemption applies to the estate of a person who dies in 2012 and did not make previous substantial gifts from the estate.
The lifetime exemption applicable to the federal gift tax also is $5,120,000 ($10,240,000 for a married couple) through the end of 2012. This exemption is in addition to, and does not include, smaller annual gifts of up to $13,000 that are excluded from the tax under a separate provision.
The lifetime exemption from the generation-skipping transfer tax allows gifts in the same amounts as above to grandchildren and great-grandchildren. This exemption applies to the total of all gifts, whether made directly to children or to more remote descendants.
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