Estate and Tax Planning Steps for 2012 and 2013


According to John Scroggin, a tax and estate planning attorney as quoted by Advisorone.com, planners will not know before 2012 year-end what estate and tax planning changes might be in store for 2013. Scroggin thinks that a last-minute deal by Congress, similar to the one in 2010, is highly unlikely.

He offered the following suggestions as estate and tax planning steps for 2012:

1.The estate and gift tax exemptions will drop from $5 million per taxpayer in 2012 to $1 million in 2013. People with estates above $5 million to $10 million should consider making significant gifts in 2012 in order to reduce the future estate tax cost of bequests when the exemption is lower and the tax rate is higher. Although Congress may increase the exemptions in 2013, there is no assurance that will happen. And if it does happen, we have no idea what the exemptions will be.

2.The federal dividend rate of 15% will expire at year-end. Anyone holding significant cash in a C-Corporation should consider taking a dividend of the cash out before year-end. If needed, the funds could be loaned back to the C-Corporation.

3.The federal capital gain rate increases from 15% to 20% in 2013. If you are anticipating an imminent capital gain transaction, consider completing the transaction before year-end. If a transaction in 2012 has any deferred payments, consider assuming the entire tax burden in 2012, rather than opting to pay taxes as the funds are received.