In 2012 there is no Federal Estate Tax payable on estate of $5,120,000 or less ($10,240,000 for a married couple). In addition there is no gift tax payable on aggregate lifetime transfers of $5,120.000 or less. Under current law these exemptions are scheduled to drop significantly from $5,120,000 in 2012 to $1,000,000 in 2013, and the estate and gift tax rates are scheduled to jump from 35% to 55%. No one knows for certain what Congress will do with the estate and gift tax exemption and rates before 2013. The conundrum, then, is that if you do nothing your estate may owe a huge tax, but if you do something it may turn out to be unnecessary if they decide to pass a new law. One option is to take advantage of the gift tax exemption that is now available ($5,120,000). If you give away your wealth and then Congress passes a new extension, the gift was unnecessary. If you don't give away your wealth and then Congress allows the exemption to expire, you've left your estate exposed to a huge tax that could have been avoided! The 2012 estate and gift tax laws, coupled with historically low interest rates, offer significant planning opportunities that should be explored.
Regardless of what happens with the federal estate and gift tax laws, the Massachusetts Estate is a separate tax imposed on Massachusetts decedents, or non-resident decedents who have real estate located in Massachusetts. The Massachusetts Estate Tax is imposed on estates of $1,000,000 or ($2,000,000 for a married couple who have a proper structured estate plan) Massachusetts has no separate gift tax, but for estate tax computation purposes, all federal taxable gifts are included in calculating the Massachusetts estate tax, however lifetime gifts may be added back to the Massachusetts estate tax base, and result in a Massachusetts estate tax liability if the sum of the gifts + the value of assets owned at death total $1 million or more.
If you would like more information on this subject, or have a client who might benefit from a discussion about it, please contact Barry Koslow at bkoslow@mkaplanners.com or (781) 939-6050.
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