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Smart Women – Smart Money – Taxes
Arcadia Weekly May 20, 2013
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Emmy, everything seems to be taxable. Most of the time I simply accept this, however I cannot abide by these death taxes. Is there a way not to pay them?
“Death Taxes”. What a loaded term! To set the record straight, there is no such thing as a death tax although I do sometimes hear people throwing that phrase around. I’d like to address this misnomer. What does exist are transfer taxes – now doesn’t that sound much less lurid? A transfer tax is imposed when assets are transferred from one person to another after death or even while the gift giver is still enjoying herself in the land of the living. Some states also get in on the act and tax these transfer transactions. Luckily, California is not one of them.
There are three types of federal transfer taxes to be considered: gift tax, estate tax, and generation-skipping transfer tax. Generation-skipping taxes apply when assets are transferred to someone, including a non-family member, who is more than 37.5 years younger than you. This generation-skipping tax is generally in addition to estate taxation.
Gift taxes are levied on transfers valued at more than $14,000. You can gift fourteen grand per year per recipient tax free. In other words, you could give $14,000 to an unlimited number of people per year and pay no taxes on that financial transfer. This could be very effective way to make new friends and avoid unabidable taxes.
Now, when assets are transferred after death, it may be subject to an estate tax. Currently, the estate and generation-skipping transfer tax kicks in for assets that are worth over 5.25 million dollars. Any transfers under that total amount are, drumroll please, tax free. In general, if you have a modest estate the federal tax system will not eat large chunks of your legacy. If your estate is over the 5.25 million dollar threshold, the story is a little different. In this case you may want to speak with an estate attorney to learn about trust options that may reduce transfer taxes.
Of course, this article is greatly over simplified. Five hundred words doesn’t allow for much detail. I’d like to end this month’s column with an invitation to an advanced estate planning workshop I’m hosting on Saturday, June 15th at the Crowell Library in San Marino. I’d like for you to join. This event will be a wonderful way for me to interact with my readers face to face. Please, call my office at 626-943-8833 to reserve a seat. This educational workshop is free of charge, so bring a friend.
Securities and advisory services offered through NATIONAL PLANNING CORP (NPC) member FINRA, SIPC, a Registered Investment Adviser. EH Financial Group, Inc. 91776 and NPC are separate entities and unrelated companies.
By Emmy Hernandez – Certified Financial Planner® Practitioner Attorney at Law
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