Long-Term Care Planning and Estate Taxes
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“In this world nothing can be said to be certain, except death and taxes.” So said Benjamin Franklin in 1789. And in the administration of estates after a person’s death, the two are inextricably linked.
To add to the complexity, the Internal Revenue Service itself says, “The laws on Estate and Gift Taxes are considered to be some of the most complicated in the Internal Revenue Code.” Among its many publications is a guide to estate taxes, available at the IRS Website.
Part of the executor’s responsibilities in overseeing the provisions of the will is to ensure that all taxes have been paid, including income taxes and estate taxes.
After a period of considerable uncertainty about the status of federal estate taxes, the situation seems stable — for now. In January 2013, with the passage of the American Taxpayer Relief Act, the amount an individual can exclude from estate taxes, including gifts given during one’s lifetime, is $5.25 million, an amount that is scheduled to increase slightly in 2014. A married couple’s exclusion is $10.5 million.
According to the Tax Policy Center, a nonprofit arm of the Urban Institute and the Brookings Institutions, just 3,800 estates are expected to be big enough to owe any federal taxes in 2013. The amounts an individual can give as a gift tax-free each year also increases from $13,000 in 2013 to $14,000 in 2014.
States have their own estate or inheritance taxes, so be sure to investigate the rules in your state. State taxes are lower than federal taxes but still can affect the distribution of assets — and the tax man gets paid before the family.
Consulting with a very experienced tax attorney or accountant is advisable. There may be some ways to reduce a tax bill, but unless your own or your parent’s estate is worth many millions of dollars, taxes should not be your primary concern.