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Wealth Blog

Why 2012 is a good year to die

By - Last modified: August 3, 2012 at 11:30 AM

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Amid all the debate on taxes going on in Washington, one topic that keeps getting side-stepped is that of estate taxes (or, as the Republicans dubbed it back in 2000, "Death Taxes").

During that election year, they were used as part of a political ploy to get voters upset at the idea that their estate would be subject to higher taxes after they died, even though most Americans wouldn’t even be affected by the tax.

Regardless, it served to bring everyone into the political conversation then and might do so again this year.

If our politicians do nothing (and it seems likely that they won’t), on Jan. 1, 2013, our estate tax code will change and will affect many more Americans than it does today. Currently, the top estate tax bracket of 35 percent affects individuals whose estate totals $5 million or more ($10 million for a married couple). With the new tax code, this bracket would be applied to individuals whose estate totals $1 million ($2 million if married).

The result is that 10 times the number of individuals in America would qualify to be taxed at the higher bracket (2 percent of all estates under the current criteria, up from just 0.2 percent under the old). What’s more, when the current laws expire, the top estate tax bracket will skyrocket to 55 percent.

The final tally of your estate includes your investments, savings, personal effects and real estate. Basically, everything you own will be counted. If it exceeds $1 million, your heirs will have to pay more taxes than before to receive your hard-earned assets.

Here in Lancaster County, this has the potential to be a large concern, especially for those farming families who tend to have a lot of their net worth tied up in valuable land. The change could end up forcing heirs to sell a portion of their inherited property just to pay the taxes.

While it looks like the tax increase is coming, there are options available to help offset them. They range from the simple to the very complex.

If you are sure you’ll have all the money you need in retirement, you may start gifting to your loved ones today to lower their future inheritance and decrease their tax burden. Some people use special forms of charitable trusts to give not only to their heirs but also to their favorite charity at the same time.

These techniques have regulations and limits, and some expire at the end of this year. Time may not be on your side.

This all leads to the simple truth that estate planning can be for everyone. We never know what the future holds, and we certainly can't be sure of the changes coming out of Washington. It is far wiser to plan today than to put off until tomorrow, hoping things will be OK.


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