When planning for the distribution of assets and the care of those left behind, there are numerous factors to take into account. Estate planning involves everything from wills to trusts and powers of attorney, and minimizing estate taxes is also a common concern of those planning the dispersal of their property. Michigan residents will be glad to learn that the new American Taxpayer Relief Act has clarified the rates and exemptions for federal estate and gift taxes, which have fluctuated over the past decade.
The law, enacted by Congress in early January, says that estates and gifts of up to $5 million are exempt from taxes. The tax rate for estates and gifts over this value is 40 percent. According to industry experts, setting the tax exemption at the $5 million level will eliminate estate taxes for 99 percent of the population.
The new law simplifies estate planning after a decade in which the tax exemption for estates has gone from $675,000 in 2001 to $3.5 million in 2009. The estate tax disappeared entirely in 2010 and was reinstated the next year for estates of more than $5 million dollars. That level was set to expire on Dec. 31, 2012, and drop down to $1 million. Now Congress has chosen to permanently set the tax exemption level at $5 million, rising with inflation.
Poor estate planning can result in unnecessary stress and financial difficulties for the heirs. Those preparing an estate plan would be wise to seek guidance from experienced professionals who can provide them with sound advice for dispersing of their estate.
Source: The New York Times, "The end of a decade of uncertainty over gift and estate taxes," Paul Sullivan, Jan. 4, 2013