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Any estate tax attorneys around ? Needin a little advice...

  • What is the current cap on an estate before estate taxes begin ? I had heard the cap dropped significantly in the last year and just wanted to clarify so to give a sound suggestion to a family member. I have a relative that is 98 years old and has an estate currently valued at $2.5 mil. I was told that the cap dropped to $1 mil as of 1-01-12. If this is correct would it not be sensible to gift the non taxable $13,000 amount to said heirs or friends this year and again in early 2013 so to reduce the overall estate as quickly as possible ? There are about 6 relatives or friends he would like to include, of which I am not a part of, but he respects my opinion.His current rate of return is about 5% on the estate value and his current overall care costs are about $100,000 per year. He has Medicare and a big plus, believe it or not, a long term care policy still in effect that pays $4,000 a month. Any suggestions to reduce the estate other than those mentioned ? Thanks in advance.

  • I am not a CPA or lawyer but the following is the information available on Fidelity Investment web site for 2012.

    For 2012, the current law provides a generous $5,120,000 per person federal estate tax exemption and taxes estates over that amount at a top rate of 35%.

    Based on what is thought, in 2013, this probably will change. I have heard in the past that there is some thought the limit may stay at this rate. This is to be determined. If congress does nothing, this may revert to the $1MM level. Big unknown. Would suggest getting with a good estate tax lawyer.

  • Thank you deacrun...I thought that the cap had already dropped from the $5 mil cap already. This should help things.

  • One additional thought. I am handling my brothers estate for my nephews. With what a elder lawyer helped me with, when some jointly owned property which I inherited at his passing is sold, my wife and I will be able to gift $13,000 from each of us to each nephew which would be $26,000 a year. Based on my understanding, your relative (if he is willing to make such a gift) may be able to gift to each of the husband and wife combinations $13,000 in a year a piece or $26,000 per family. I would suggest checking this out but think that is the guideline. Again, check with an estate lawyer or a CPA.

  • CockAtLaw

    I am an estate planning attorney and there are two concepts to be thought about here. One is the "estate tax exemption" and one is the "lifetime gift tax exemption." Right now, both are $5,000,000, but they have not always been the same. If nothing happens, both amounts will return to $1,000,000 on 1-1-13. Annual exclusion gifting of the 13,000 per donnee per year is one option. Another option, if your relative really hates estate tax, is to make a larger gift this year to a trust for the benefit of his family members. If your relative gifts property away this year while the gift tax exemption is high, there will be no gift tax and the property will be removed from his taxable estate.

    Annual exclusion gifting is always a good thing to do, but there are other things your relative can do based on how much property your relative is willing to part with this year.

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  • Thanks CAL...I appreciate your help very much. Do you think Congress will act before the 12-31-12 deadline?

  • CockAtLaw

    No, I don't. Specifically with regards to the estate and gift tax, I believe the exemptions will revert back to $1,000,000 as of 1/1/13. However, later in the year, I expect the exemption amounts to go back up when a deal does pass, and I believe that will be done retroactively so the new number will apply as of 1/1/13. In 2010, where nobody knew if the estate tax would exist for that year or not, when a deal retroactively was done, it allowed for people to choose whether they wanted to fall under the estate tax regime or not. I don't think anything like that will be necessary next year if all that happens is the exemptions being increased, they simply will be increased as of 1/1/13. Essentially, if a person dies with $2,000,000 of property on 1/2/13; it might initially look like their estate will pay estate tax, but if the exemption is later increased to $2,000,000, the estate tax return they actually file will show the increased exemption and no tax would actually be due. We are now living in a world where no comprehensive tax reform will ever be passed, but rather we will see short term patches (see the AMT for an example).

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    You may run like Hayes, but you hit like $*!#