A lot of people are not aware of the fact that gifts that you give throughout your life are potentially taxable. We have a federal estate tax in place, and the gift tax prevents people from giving away their assets while they are still alive in an effort to avoid the estate tax.
The two taxes are said to be “unified.” As a result they both carry the same rate, which is 40% in 2013. The unified exclusion for 2013 was $5.25 million. This means that anything that you give away that exceeds this amount may be taxable.
As 2012 was coming to a close there was uncertainty about the estate tax parameters. The exclusion would have been just $1 million, and the rate would have been 55% if existing laws remained intact.
However, we have the $5.25 million/40% structure as a result of the passage of the American Taxpayer Relief Act of 2012.
Throughout 2012 the exclusion was $5.12 million. Because it was possible that this figure could have been slashed to $1 million in 2013 many people gave large gifts during 2012 in an effort to take advantage of this expanded exclusion.
You must file Internal Revenue Service Form 709 to report potentially taxable gifts that you gave during the previous year. Because of the fact that many people wanted to take advantage of what was seen as a fleeting window of opportunity in 2012 when the $5.12 million exclusion was in place tax experts say that the IRS was handling a very high volume of these forms in 2012.
It would be difficult for the average layperson to have an understanding of everything that the IRS requires. This is why it is a good idea to develop a good working relationship with an experienced estate planning attorney who will always be on top of current tax regulations.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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