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Houston Estate Planning and Probate Blog

Monday, December 23, 2013

Protecting Your Legacy with Estate Tax Planning

You spend your whole life building your legacy but sadly, that is not always enough. Without careful estate tax planning, much of it could be lost to taxes or misdirected. While a will or living trust is essential for dividing your estate as you wish, an estate tax plan ensures you pass on as much of your legacy as possible.

Understanding estate tax laws

For the past decade, estate tax laws have been a sort of political football game with significant changes occurring every few years. The good news is that the 2013 tax act made the basic $5 million estate tax exemption “permanent,” but at a higher rate of 40%, though the law continues to upwardly adjust the exemption level for inflation. With this adjustment, the 2013 exclusion is $5.25 million per person ($10.5 million per married couple). The law also retained exclusion “portability” which means that if one spouse dies in 2013 or after, the surviving spouse may pass on the unused portion of the deceased spouse’s exclusion. This portability is not automatic, however. The unused portion needs to be transferred to the surviving spouse, and a special tax return (estate tax return) must be filed within nine months of the death of the first spouse. The surviving spouse does not have to pay estate taxes at this time, they only become due, (if at all), after both spouses have died.

Optimizing your estate plan

One way to maximize the amount you can pass on is through annual gifting while you are alive. For 2013, an individual is allowed to give $14,000 to another individual, tax-free. If you give more than that, it will reduce your basic lifetime exclusion. So, if you give a child $50,000 this year, your basic $5.25 million exclusion will be reduced by $36,000 at the time of your death. You can gift as much as your full $5.25 million exclusion before incurring taxes, although doing so would “exhaust” your estate tax exemption at death. Gift tax rates were raised to 40% in 2013 and are paid by the giver, not the recipient.

An experienced estate tax planning attorney can help minimize potential gift and estate taxes by:

  • Identifying taxable assets
  • Transforming your wishes into a will or living trust
  • Keeping you apprised of federal and state tax law changes
  • Establishing an annual gifting plan
  • Creating family and charitable trusts
  • Setting up IRA charitable rollovers
  • Setting up 529 education savings plans
  • Helping you create a succession plan for your family business

It’s never pleasant to consider the end of your life, but planning for it will help ensure that the things you care about are cared for. It is one of the greatest gifts you can give your loved ones.


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