One of the excellent reasons a person in the Twin Cities may want to hire a legal tax professional is because those professionals make certain that they are up-to-date on tax law. That is turning out to be extremely important this year. The dreaded fiscal cliff is in sight and Congress will need to act. But what will they do?
One thing that seems to be certain is that change will occur. What type of change will occur is much less certain. Two items seem to be set for changes -- the estate tax and the gift tax.
The status quo for estate and gift taxation is briefly as follows until December 31, 2012.
- An exemption of $5.12 million for estate and gift tax is in place until January 1 when it reverts to $1 million, unless altered by Congress.
- The current estate tax tops out at 35 percent this year for anything more than the exemption amount and would revert to 55 percent in 2013 if changes are not made.
- The annual gift-tax exemption is currently $13,000 for an unlimited number of gifts.
There are a few obvious potential solutions to avoid a potential tax hit in 2013.
- Put the money in a trust (irrevocable trust, spousal lifetime access trust or other types of trusts).
- Give away a home to an heir and rent it back through a qualified personal residence trust or QPERT.
- Max out on the gifting in 2012.
- Do nothing.
With the election behind us, changes could come quickly or could come at the 11th hour. For those with complex tax liability issues, it may be wise to set up a Plan A and Plan B and leave the signature to the desired plan after Congress makes tax code changes. Or not.
Source: Associated Press, "Coming changes in estate, gift taxes stir 'frenzy','" Dave Carpenter, Oct. 24, 2012.
- At our Minneapolis law firm we represent clients with the full range of federal tax liability issues or state tax issues.