Estate planning can be a complex process, and when the assets involved in an estate are of high value, it’s especially critical to understand all the ways taxes can affect one’s estate. That’s especially true as 2012 comes to a close, because major changes in gift and estate laws for 2013 could have a massive impact on estates valued over $1 million in the coming year. These changes will not only affect estate planning here in Michigan but throughout the entire United States.

Those concerned about these changes are racing to minimize their tax burden through a variety of methods, including creating trusts and making financial gifts to heirs. The efforts are keeping financial advisers and attorneys very busy. As recently reported, this is all because the exemption level for estate and gift taxes is scheduled to drop from $5.12 million to $1 million on the first of the year if Congress does not act to extend the tax break. There is also a tax rate increase that could make the impact even greater.

Those concerned about these changes are racing to minimize their tax burden through a variety of methods, including creating trusts and making financial gifts to heirs. The efforts are keeping financial advisers and attorneys very busy. As recently reported, this is all because the exemption level for estate and gift taxes is scheduled to drop from $5.12 million to $1 million on the first of the year if Congress does not act to extend the tax break. There is also a tax rate increase that could make the impact even greater.

In 2013, the value of an estate over $1 million will be faced with a top rate of 55 percent next before it can be distributed to the heirs of an estate. That’s a marked increase on the current rate of 35 percent, and that didn’t even take effect until assets hit the $5 million mark.

Federal estimates indicate that the new rates could affect about 55,000 estates next year, a huge increase over current rates, which affect fewer than 4,000 estates. Anyone with $1 million or more in assets should be aware of their options and rights during this critical time.

Source: The Times Herald, “Save a lot in estate, gift taxes in 2012,” Matt, Oct. 22, 2012