What is Estate Planning and Tax Consequences?

There are two basic factors why estate planning is so significant. First, estate planning enables you to choose what will happen to your assets upon your passing. Second, by planning in advance, you can substantially lower the tax implications of transferring your estate assets to family members or loved ones. In the lack of planning, your estate assets may be exposed to either estate or gift taxes, both of which can significantly drain estate assets. By seeking advice from with a Temecula Probate attorney Steve Bliss quickly, and reviewing your plan frequently, you can design your estate in a way that will minimize your exposure to both estate and gift taxes. – Estate Taxes: Estate taxes apply to the net value of your estate at the time of passing. Upon your passing, your estate assets must be inventoried and valued. The worth of your estate assets are based on the worth on the day you passed away in most situations. Each taxpayer is eligible to an estate tax exemption amount prior to the estate incurs estate taxes. Over the past ten years, the exemption has changed from $1 million dollars to $5 million for 2012 — yet is expected to be cut down back to $1 million for 2013. The corresponding tax rate has also changed from 55 percent to its existing 35 percent. It is also expected to return to as much as 39 percent to 55 percent for the year 2013. So what does this mean for someone with a sizable estate? Without proper estate planning, an estate for a decedent who passes away next year that is valued at $5 million will lose roughly $2.2 million to estate taxes, making an estate worth only $2.8 million. – Gift Taxes: In the event you believe that you may be able to prevent the impact that estate taxes have on your estate by gifting assets to family members or loved ones before to your passing — think again. Gift taxes, as the name implies, apply to gifts that you earn over your lifetime. As with estate taxes, there are exclusions to the gift tax. Each taxpayer may create yearly gifts to as many individuals as they prefer up to the existing exclusion amount. As of 2012, that amount is $13,000. In addition, a lifetime exemption amount also applies. As of 2012, that amount is $5 million. As with estate taxes, those amounts fluctuate on a regular basis. The lifetime exemption amount is expected to fall back to $1 million for 2013. Although the tax rate also changes, as of 2012 it is at 35 percent and is also expected to improve again for 2013.