What is Estate Planning and Tax Consequences?

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While the potential to choose who will take your assets upon your death is definitely a significant feature of estate planning, the chance to lower, or even prevent, the tax consequences of passing on wealth and assets upon your death is an evenly necessary aspect of estate planning.

The potential to lower, or even prevent, the tax implications of passing on wealth and assets upon your death is a just as necessary aspect of estate planning. If you miss planning effectively, as much as half of your estate assets can be lost to estate and/or gift taxes. Every dollar that is lost to taxes is one dollar less that you are ready to leave to your family and loved ones when you pass away. By speaking to with your San Diego estate planning attorney, earlier, and often from here out, you can build an estate plan that gets into account the possible tax liabilities that can be sustained upon your death.

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– Gift Taxes: When you make a gift to someone, whether it be in cash or a different type of asset, that gift may be subject to the payment of gift taxes. Each taxpayer is qualified to make yearly gifts to as many people as he wants up to an amount that is less than the present gift tax annual exclusion amount. For 2012, the exclusion amount is $13,000. In other words, you may make gifts of $13,000 each to several various individuals if you wish. You are also qualified to a lifetime exemption. The present exemption amount is $5.12 million, but is scheduled to return to $1 million for 2013. Gifts that exceed the yearly exclusion or lifetime exemption are subject to the gift tax. The gift tax rate is typically high. For 2012, the rate is 35 percent but will raise to the previous rate of 55 percent for 2013.

– Estate Taxes: Your estate assets must be inventoried and valued when you pass away. The value of those possessions at the time of your death is then subject to estate taxes. As with gift taxes, there is an estate tax exemption which changes each year as does the tax rate. For 2012, the exemption is $5.12 but is also set to be decreased to $1 million for next year. Also, like gift taxes, the present tax rate is 35 percent but will return to 55 percent next year. An estate of a decent who passes away in 2013 that is valued at $4 million dollars would lose a staggering $1.65 million as a result of the estate tax without efficient estate planning.