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Reducing Estate Tax in Vermont

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taxesFew of us have to worry about estate taxes or gift taxes as the exemption for 2013 is $5.25 million. That means for those who have access to this level of assets, they can give away right at $5.12 million without worries of federal taxes. For a married couple, that limit is $10.5 million. That said, there are state taxes that must be considered and because the laws vary, finding a Vermont estate planning lawyer is your first best decision.

Reducing Estate Tax in Vermont

If you are, however, concerned about estate taxes, you have the option of shedding some of your assets while you’re living. Ideally, of course, you’d want to do this for the feel-good effect, but if not, you can at least ease your worries. And in those instances, before 2013 is nothing but a memory, you can give away up to $14,000 in cash or property with no tax repercussions at all. That said – anything over $14,000 to one recipient could jeopardize your potential tax savings, so keep that in mind.

Annual Exclusions

The more proper term for the tax exemption is known as an annual exclusion. It’s really rather simple and without many of the exceptions estate laws sometimes have; however, that doesn’t mean that it’s something you can set up yourself. There exists the potential for mistakes or misunderstandings. Again, financial planning with your attorney can go a long way in bypassing those potential problems.

For instance, what if you wanted to give to your son $25,000 this year? Does the entire gift lay vulnerable for taxing? It’s important to understand these scenarios – and for the record, the first $14,000 (or $28,000 if both parents are gifting their son) is tax free while the remaining $11,000 is taxed. And does the law see parents gifting their offspring as one entity or two? The IRS says the gift is being made by both spouses – which means new questions and possible confusion on how the law’s actually interpreted.

Then there are considerations regarding inflation or cost of living increases – it’s all very important and very fluid. What the rules are today might be different tomorrow, especially the annual limits mentioned above.

Doubling the Gift

There are ways, too, for parents to double even the $28,000. If you gift your son the maximum amount of $28,000 on December 31st, and then gift your daughter-in-law another $28,000 the same day, you can then turn around on January 1st, the very next day, to gift your son and your daughter-in-law the same amount with no worries about taxes. If, however, you don’t make the gift before the year ends, you need to know it’s not retroactive. You won’t be able to backpedal. Also – these are calculated via calendar months.

Gifting Your Spouse

Did you know that any gifts made to your spouse are tax free? The only condition is that the spouse is an American citizen. If that’s not the case, the limit for 2013 is $143,000, according to the IRS. Ah – but there are legalities that could affect your estate in the long run. Specifically, if his or her estate grows too big, at the time of his or her death, the taxes could be overwhelming.

Other options include gifting non-cash assets. Real estate and stocks are two examples.

Remember, though, that these laws change. Both Vermont laws and federal laws must be taken into consideration. Our team of estate planning lawyers stand ready to provide expert advice and guidance for all of your financial planning needs.

Stephen Unsworth
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