Anticipated changes to the federal tax code that will affect estates and gifts have many Texas residents hurrying to make an end of the year deadline. Without any further action, tax rates for inheritances and for gifts will go up. The current law allows for no taxes to be taken out of gifts or inheritances of up to $5.12 million. For any amount given to a single person above that amount, the remainder is taxed at 35 percent. For many Texas residents and financial planners around the country, the high exemption amount means that many people have been able to pass assets to their children, grandchildren, friends, and charities without too much concern over the tax implications.
However, this will all change on January 1st, when the possible exemption will go down to just $1 million. This may seem like a lot of money to most readers, but it’s important to take into account the value of the family home, retirement accounts, life insurance policies, and other similar assets. The value of those types of assets can add up quickly, particularly in a recovering stock market. Any amount that is given to one person or party that is over $1 million will be taxed at the high rate of 55 percent.
Congress still has the opportunity to act to change the law, but many experts believe that the result will rest largely on the outcome of the upcoming election. That lack of certainty has led many to start making gifts this year to take advantage of the current tax rate. Some estate planning attorneys have told reporters that they have experienced a “frenzy” of requests to take advantage of the tax rate in the face of the uncertainty.
Source: Associated Press, “Coming changes in estate, gift taxes stir ‘frenzy,'” Dave Carpenter, Oct. 24, 2012.
More information on estate planning and tax planning for Texas residents is available on our website.