The 2013 Estate Tax Exemption is $5,250,000…

Why Should I Still Consider Gifting?  

 The American Taxpayer Relief Act of 2012 increased the lifetime estate and gift exemption to $5,120,000 and permanently indexed it for inflation while simultaneously increasing the estate and gift tax rate from 35% to 40%. The portability provision that allows couples to take full advantage of each other’s unused federal estate and gift tax exclusion remains effective. It should also be noted that the amount that may be gifted annually to any one individual without gift tax or filing consequence has increased to $14,000. As a result, you may be asking if our total estate is below $10 million, why I should still consider gifting.

Massachusetts estate tax laws have not changed.  Now, and for the foreseeable future, estates of Massachusetts residents are only entitled to a $1,000,000 exemption. In Massachusetts, if one spouse dies before their estate is properly planned and a couple has assets worth more than $1 million, the couple may wind up losing a valuable exemption amount. Massachusetts estate tax rates range between 6% and 12%.  Gifting will help reduce your Massachusetts taxable estate.

For example, a taxable estate of $4,500,000 will pay Massachusetts estate tax of $335,600 and no Federal estate tax.  Taking the same estate and assuming that $3,000,000 of gifts were made, the taxable estate would then be $1,500,000 and Massachusetts estate tax would be $64,400.  By gifting $3,000,000, the taxpayers (and thus their heirs) saved $271,200 in taxes.

There are several reasons in addition to current Massachusetts estate tax savings to consider gifting.  We have included some considerations below:

  • Reduce Estate Tax on Future Appreciation:  If a 2012 gift of $5 million were to appreciate to $10 million through the date of the donor’s death, there is a potential to receive an estate tax savings of $1.75 million (35% of $5 million in appreciation), not factoring the additional state benefits which would also be received.
  • Succession Planning for your Business:  Consider gifting limited partnership interest or non-voting stock to avoid future income and estate taxes on the family business.  Powerful valuation discounts are available on these gifts to further maximize potential tax savings.  Transferring even small interests now can provide significant savings as your business grows.
  • Asset Protection: Gifting strategies and transferring assets to certain irrevocable trusts can, not only preserve your wealth, but also shelter assets from possible future claims, etc.
  • Other Gifting Vehicles to Consider:  There are a variety of other vehicles that may fit your situation relative to gift and estate planning strategies.  Some options include Grantor Retained Annuity Trusts (GRAT), Qualified Personal Residence Trusts (QPRT), or Family Limited Partnerships (FLPSs).

Contact us today for a comprehensive review of your estate plan along with gifting strategies that may benefit your situation.

Yours truly,

Newburg & Company, LLP