Understanding the Impact of The New Estate and Gift Tax Laws

February 21, 2014

monetarygiftAn important aspect of our childhood development revolved around playing various sports and games. We learned to properly understand the rules of those games and formulated strategies to win. We also learned to adapt to the ever changing dynamics of the games we played. When it comes to estate planning, things aren’t much different. As the President signed the latest changes regarding estate and gift tax laws named “American Taxpayer Relief Act” on January 2, 2013; it is important to understand and review the impact of those changes in order to make adjustments to our existing estate plans and gifting strategies.

Following are some of the key changes that may affect your plans:

Estate Tax
For only a year in 2010, there were no estate taxes. However, in the following years, the top estate tax rate will be as high as 35-40 percent. While there were tax exemptions to amounts not exceeding 5 million dollars in those two years. In 2013, the exemption was increased to $5,250,000. The Internal Revenue Service (IRS) just announced the inflation adjusted estate tax provisions for 2014. While the estate tax exemption has increased to $5,340,000, the annual gift tax exclusion is unchanged and remains $14,000.

Generation-Skipping Transfer Tax
Generation-Skipping Transfer (GST) permits reassigning ownership of assets to another person as long as that person is two or more generations younger than the person who is reassigning the assets. For example, grandparents may handover ownership of a property or portfolio by the means of gifts or at death to their grandchild. Back in 2010, under the “TRUIRJCA” or “TRA 2010” GST taxes were temporarily repealed for the year 2010. However, the GST was imposed back in 2011 with the rate at 35 percent, and 40 percent in 2013 onwards.

Gift Tax
For 2014, after indexing and adjusting it for inflation, the lifetime gift tax exemption is increased to 5.34 million dollars. With the aid of a qualified financial advisor, a married couple can take advantage of this new law regarding lifetime gift tax exemption in 2014 and gift up to 10.68 million dollars to future generations without paying any gift, GST or estate taxes. This has created an extraordinary opportunity to transfer wealth to future generations in terms of the tax-free gifting.

These temporary estate, GST and gift tax laws offer families a chance to develop new strategies to transfer wealth in 2014 as far as estate planning is concerned. If you would like to explore these opportunities, please call us at 832-585-0110. We will be happy to work with you and/or your estate planning attorney.



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