In addressing their estate plans, some California residents have probably heard about the gift tax exemption, which is scheduled to change dramatically at the beginning of 2013 unless Congress takes legislative action. One of the most important aspects of estate planning is asset protection, and for individuals and couples looking to avoid unnecessary taxation, the gift tax exemption is of critical importance.
At the present moment, the tax laws allow a person to transfer $5.12 million in assets tax-free during that person's lifetime. After that, gifts can be taxed up to 35 percent. At the end of the year, however, the new exemption will shrink to only $1 million, with a top taxable rate of 55 percent for gifts above that. For people who want to pass on their assets without subjecting them to potentially higher taxation in the future, the time to take advantage of the gift tax exemption is now.
One of the most important steps in the process of transferring property as gifts is getting an appraisal. This is necessary to meet the Internal Revenue Service's extremely stringent rules when it comes to valuation of these assets. People looking to take advantage of the gift tax need to take steps to obtain appraisals that will withstand IRS scrutiny. Planning ahead is vital, since the process can take weeks or months, especially with the services of quality appraisers in high demand during this historic crunch.
Before giving assets away for the sake of taking advantage of the current generous lifetime gift tax exemption, however, people should consider the gifts in the context of their overall estate plan. People should balance their desire to act before the end of the year against their assessment of their own future financial needs.
Source: Reuters, "Appraisers are your gatekeepers to gift tax deadline," Lou Carlozo, Aug. 8, 2012.