One expected tax
change is the federal estate gift-tax exemption currently set (with
inflation-index limits factored in) at $5.12 million for an
individual and $10.24 million for married couples. Many experts expect
this exemption to change. One suggestion is the exemption drops to $1 and
$2 million respectively, but many tax professionals believe the gift-tax
exemption will settle at $2.5 and $3.5 million levels. No one can be sure
what the final exclusion amount will be, but almost everyone believes it will
not remain at the current 2012 level.
There are some actions those with a net worth of $5 million
or more can take now to avoid a large tax bill and one is to gift real estate
to their heirs. It is always prudent to both seek and heed advice from your personal estate
planning attorney and tax accounting professional before taking any
action. Your discussions with them will include consideration
of your total estate plan. To plan effectively for gifting real estate, it is necessary to have up to date appraisals of any assets to be gifted. Those appraisals must be attached to IRS form 709, the Gift Tax Return Form, to be filed for any gifts assessed above a $13,000 value. That said, here are some important
guidelines to remember:
- Future tax policy is not the only issue to consider. Family issues can arise related to trustees, beneficiaries and family values, as well as changing capital gains and estate tax rates that will affect your final decisions. Do not rush into gifting solely to avoid paying high estate taxes. Once you gift an asset, you lose control of it which means you may lose its benefit as you need to meet expenses related to aging.
- Consider gifting property in which you may have a low cost basis but is valuable and which your heirs will want to keep throughout their lifetime such as a golf course home, seaside villa or a lake/mountain home.
- Another choice can be to gift property recently acquired whose value has not risen significantly which your heirs may want to sell, but whose profit margin would be negligible, thereby avoiding a high estate tax calculated as a capital gains tax as the property appreciates over time.
- If you have a valuable property which you feel should be gifted to lower your estate tax bill, it might be prudent to do so as the capital gains tax rate your heirs will pay (should they liquidate your gift) will be considerably lower than the estate tax you would pay.
Happy holidays and may you and your family
always be blessed with health and happiness!
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