Elderly people need to have a proper estate planning strategy to ensure they leave all their belongings to the right people after death. However, many people fail to do this. A report from the American Association of Retired Persons shows that only four out of every 10 adults in the United States of America actually have a will.
Last month the Treasury Department proposed rules that could dramatically impact estate tax planning. Specifically, the Treasury Department is planning to limit, or even eliminate, the use of "valuation discounts" for closely-held companies, LLCs and other assets. The Treasury Department issued these proposals in August. On December 1, 2016, there will be a public hearing to discuss the merits of this proposal. It is possible the Treasury Department will formalize changes to these rules before the end of 2016.
The recent fiscal cliff tax deal, as we've previously noted, indefinitely extended the $5 million per person estate tax exemption amount. The exemption, indexed for inflation, is now at 45.25 million. That's pretty generous, and makes it so that many people don't have to worry too much about any estate tax at the federal level. That being said, there are still state inheritance and estate taxes to consider.
With the New Year almost upon us, many people will be making resolutions to lose weight, stop procrastinating, eat healthier, stop smoking, and so on. Maybe, just maybe, some people out there will also be planning on finally getting around to getting their affairs in order and doing some estate planning.
Estate planning can be a complex process, with many things to take into account. One of the issues in estate planning that is sometimes overlooked is the importance of providing funds for an estate to pay its estate taxes. When that happens, heirs may be forced to sell assets they don't want to sell-like real estate, businesses, investments or valuable personal property-in order to cover the costs.
As our regular readers know, big changes are presumably in store for estate tax law for 2013. While each taxpayer currently has a $5.12 million lifetime federal estate/gift tax exemption, that number could drastically decrease if Congress doesn't take action by the end of the year. Those who die between now and the end of the year with an estate worth less than $5.12 million will owe no federal estate taxes. Estates exceeding this amount will be taxed at a top rate of 35 percent. At this point, the default for next year will be a lifetime estate/gift tax exemption of $1 million and a top tax rate of 55 percent.
According to a new study conducted by the chief economist of New Jersey's Department of Treasury, wealthy residents are being driven out of the state because of high taxes. This, in turn, is slowing the rate of recovery in the state. According to Bloomberg Economic Evaluation of States Index-which looks at data on employment, income, real estate, taxes and local stocks-New Jersey's economy was the third worst perform economy in the United States through June 30.
Reducing estate tax liability is an integral aspect of estate planning, and an especially important task for clients with large estates. But tax planning isn't exclusively for those with estates exceeding the estate tax exemption amount. Those with smaller estates shouldn't assume they will not be affected by estate taxes, since tax law tends not to stay put for very long.
In our last post, we began speaking about the importance of ensuring your estate has enough funds to pay of taxes and other expenses related to winding down the estate. We noted that the first step in the process should be to determine your tax liability and other expenses. The next step is setting aside the funds to cover those costs.