Last year, the whirlwind of debate about the fiscal cliff and possible changes to federal tax law led some estate owners in Orlando to make some quick adjustments to limit tax liability. Many people with significant assets made lifetime gifts and created trusts to avoid a possible tax hike.
But Congress ended up changing the top tax rate to what it was before the fiscal cliff debacle: 40 percent. And earlier this year, the Internal Revenue Service adjusted for inflation and said that the estates of people who die in 2013 could be excluded from the estate tax if the estate is worth less than $5.25 million (up from $5.12 million in 2012).
In any case, it's expected that, by April 15 of this year, two times as many people will have to report potentially taxable gifts than in the previous filing season. The way to report gifts made in 2012 is to use Form 709, even if the gift isn't taxable. The IRS wants a tally of how much you have gifted tax-free.
It's also important to consider your annual exclusion, which involves gifts that can be used immediately by the recipient. That kind gift could be cash or property, but gifting money to a trust is different because the money isn't a present interest for the beneficiary, who will use the funds later and not now. For present interest gifts given in 2012, the annual exclusion amount came to $13,000. That amount goes up to $14,000 for gifts in 2013.
The best course of action for handling estate and gift tax issues is to meet with an attorney with experience in these matters. Staying abreast of current tax law is one key to protecting estate assets for you and yours.
Source: Forbes, "Don't Gamble With Gift Tax Returns," Deborah L. Jacobs, March 22, 2013