AVOID ESTATE TAXES BY USING STRATEGY

The fiscal cliff was avoided by 11th-hour decisions at the nation’s capital, but the American Tax Relief Act of 2012 did not eliminate all unsavory tax requirements. The most recent changes to tax law are designed to be permanent, eliminating the potential for unexpected alterations that could alter estate valuation and planning.

Experts say the new tax plan should be considered as a kind of cliff tax. People who intend to hand down less than $5.25 million will be able to avoid the estate tax altogether. Leave just one dollar more, however, and the tax rate skyrockets to a whopping 40 percent.

Financial gurus say the estate taxes exclude most business owners, but those who are affected are likely to unduly suffer for everyone else’s benefit. Several strategies can be used to avoid paying the bulk of the estate taxes, but this will require some legal maneuvering.

Financial experts say one of the most favorable modifications to existing tax law was the provision allowing gifting. In essence, you can gift the same amount of money that you might die with, but you can avoid most tax penalties by distributing assets while you are still alive. Once assets are gifted, they are excluded from taxation that may affect your estate as a whole.

People seeking to avoid estate taxes can also consider lending money to their heirs. The current low economy has made intergenerational business transfers far more favorable than they were just a few years ago. Parents can sell shares of their business to their children for rates as low as 2.52 percent without paying gifting taxes.

Other options include irrevocable life insurance trusts that can be used to absorb tax payments after death. Business owners could also consider gifting their business to a non-profit group in the absence of a willing family member. Experts say that the new tax law requires strategizing to avoid unnecessary payments, but business owners can avoid many of the most damaging provisions.

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Written by Luis E. Barreto

Luis E. Barreto

Luis is a probate and guardianship litigator with over 23 years of experience in the field. Determination of heirs, will contests, breaches of fiduciary duty, removal of personal representatives, guardians and trustees are just some of the types of litigation he addresses. In addition, he administers non-contested estates and guardianships.