Estate tax exemptions are a major consideration for Texas residents when planning the way that they want to pass money and other assets to the next generation. Unfortunately, estate taxes are subject to frequent changes and improper planning now can lead to significant losses in the future.
Many people seek to avoid paying large amounts of estate tax by giving to their children, grandchildren, or other loved ones while they're still alive. This can be done by taking full advantage of gift tax exemptions, which have limits for each year as well as for an individual's lifetime. Prudent planning can help to maximize the opportunity of the gift tax exemption, but because it's always changing it's important to incorporate some flexibility into an estate plan.
Next year the exemption is set to drop substantially, from $5.3 million for one person's lifetime to just $1 million. The rate for gifts above and beyond that amount is also set to increase. Few experts believe that lawmakers will allow this highly unpopular change to take place, but many encourage clients to plan for it just in case it does.
Some estate planning professionals have reported three times the amount of gifts being given and gift tax returns being filed in advance of the January change. For the person doing the giving, this can mean an uncomfortable and unwanted loss of control over the money or asset, since the gift must be made in full and must be irrevocable.
More information about estate planning for Texas residents is available on our website.
Source: The Wall Street Journal, "How to Control Your Heirs From the Grave" Laura Saunders, Aug. 10, 2012.