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Posted on Monday, September 17th, 2012 by Peter Klenk

Only a little over three months remain to maximize estate tax and gift tax opportunities that are scheduled to disappear in 2013. There is still time, but if you are going to act you need to start working with your estate planning lawyer soon.

Never have the Gift Tax and Estate Tax exemptions been higher than they are currently. The Federal Estate and Gift Tax Exemptions are currently $5,120,000.00. If congress takes no actions, these exemptions fall to $1,000,000.00 in 2013. This change exposes to taxation an additional $4,120,000 to those who die or gift in 2013 vs. 2012, increasing the tax due by hundreds if not millions of dollars.¹

So there is no time like the present to consider using the existing exemption before it disappears in three months.

Opportunities:

Consider maximizing your potential Gift Tax Exemption. If you have never made a gift subject to the Federal Gift Tax exemption, you have the ability to transfer $5,120,000 as a gift to individuals or into trust without paying gift tax. This will lock in the current exemption rate and preserve the $4,120,000 of tax-free gifting that you might otherwise lose in 2013. Together, a couple could make $10,240,000 of tax free gifts. If you made taxable gifts in the past, the difference between $5,120,000 and the total amount of past gifts is still available.

Consider making gifts in excess of the Gift Tax Exemption. If you exceed the $5,120,000 Gift Tax Exemption you will pay the current, maximum rate of 35% towards Gift Tax. But exemption drop in 2013 and should you then die or make a gift subject to tax, the maximum rate will have increased to 55%. By paying the tax in 2012 you will have reduced the tax payable by 20%. These transfers are not for everyone, but should be considered if there is a good chance the gift giver will die in 2013 or soon after.

Take into consideration that gifts might also avoid the state Inheritance Taxes. Pennsylvania has no gift tax, and gifts made more than one year before the date of death avoid the Pennsylvania Inheritance Tax². Similarly, New York has no gift tax. Transfers to avoid the federal estate tax by Pennsylvanians and New Yorkers thus have the added benefit of reducing taxes due to the state.

Don’t let the Tax Tail wag your dog. Reducing or avoiding taxes is a noble goal, but these savings should not come at the expense of your financial wellbeing. Working closely with an experienced estate planning attorney will allow you to review many techniques that allow you to lock in the potential tax savings described above, but still retaining security for yourself.

Throughout our website, klenklaw.com, you may find more information about Estate Planning and Estate Planning tools. Our firm focuses exclusively in the area of estate planning, probate, and the litigation surrounding estate planning and probate including Will Contests and Will Challenges. If you have estate planning questions, please call one of our Experienced Estate Planning Lawyers for a free consultation. Estate Planning is all our Will drafting lawyers do!³

¹ Federal Estate Tax, Gift Tax and Generation Skipping Tax exemptions at the 2013 levels expire on January 1, 2013 and revert back to the 2001 levels. Couples are able to work together to protect $10,240,000 from tax ($5,120,000 each) but this will drop to $2,000,000 per married couple in 2013. The Generation Skipping Tax exemption will drop to an inflation adjusted amount of about $1,400,000 from $5,120,000. This will subject the differences to a tax rate that will have a top rate of 55% vs. 35% for 2012.

² The Pennsylvania Inheritance Tax rates are 4.5% for descendants, 12% for siblings and 15% for more distant relatives or unrelated persons.

³ The Law Offices of Peter Klenk has Will drafting attorneys licensed in New York, Pennsylvania, New Jersey, Florida and Minnesota.

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