A recent Forbes article put out yet another call for residents to take stock of their estate planning details by the end of the year to take advantage of a favorable tax situation that may be gone soon. The story notes that interest in the gift and estate tax rates have been eclipsed in recent weeks and months over calls for overall tax reform, including changes to income tax rates. But that doesn't mean resident should forget the soon-to-be-gone rates.
Our New York elder law estate planning attorneys know that everyone's situation is different, and it is impossible to predict what the rates might be in the future. Yet, even a quick look at the current political dynamic suggests that those who might include gifting as part of their plan are well advised to take advantage of current rates before year's end. Right now, when inflation is factored in, individuals can transfer up to $5,120,000 tax free. That level will likely rise in just over five months.
Per tradition, Congress is yet to put together a permanent plan in place. When these original cuts were passed in 2001 with progressive cuts to 2009, most assumed that a permanent plan would be in place by the end of that decade. Not so. In fact, Congress's delay meant that there was no estate tax in 2010. This is why very wealthy individuals who died in that year--like George Steinbrenner--were able to pass on their entire estate tax-free.
Yet, estate planning attorneys continue to remind residents that taking advantage of these tax rates does not require one to pass away. That is because assets can be given away to intended heirs now, even when one is alive, at the high exemption rates. Taken together, a couple can pass on up to $10,240,000 without tax right now. If they wait five and a half months a large part of the transfer would be eaten by taxes.
It is crucial to take a moment to ask a legal professional how this might be best applied in your case. A lot will hinge on one's overall financial status such that gifts can be given now without compromising the individual or couple's long-term stability and planning. For example, to take advantage of this exemption rate gifts do not necessarily need to be given outright. Tools like trusts can be used to keep the donee from having complete control of the assets at this time while still taking advantage of the tax situation.
Other consideration include the value of giving gifts that will appreciate in value. That is because this comes with the benefit of ensuring the appreciation is also taken out of an estate so that it is not taxed upon one's death.
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