Three big changes in the way that trusts are taxed starting in 2013 are making it far more important to be careful about trust distributions. A trust’s income and capital gains will now be taxed very differently – and much more heavily – than income and capital gains for individuals. As a result, you’ll want to think very carefully about how you arrange distributions. And you might also want to have any existing trusts reviewed to
Year Exemption Amount Top tax rate 2001 $675,000 55% 2002 $1 million 50% 2003 $1 million 49% 2004 $1.5 million 48% 2005 $1.5 million 47% 2006 $2 million 46% 2007 $2 million 45% 2008 $2 million 45% 2009 $3.5 million 45% 2010 Repealed 2011 $5 million 35% 2012 $5.12 million 35% 2013 $5.25 million 40%
A federal estate tax return doesn’t have to be filed every time someone dies. In fact, most estates never have to file one. However, a provision in the new “fiscal cliff” tax law may make it very advantageous to file an estate tax return if the deceased person is survived by a spouse – even if a return is not legally required. Here’s why: Generally, when a person dies, his or her estate can give an
The new tax law that resolved the “fiscal cliff” issue in January allows employees with a 401(k) plan at work to roll over any or all of the assets in their current plan into a Roth 401(k) plan. This is a big change, and should at least be considered by anyone who is eligible. In a traditional IRA or 401(k) plan, employees contribute pre-tax earnings to the plan. The assets grow tax-free until retirement age, at
The annual gift tax exemption has been increased to $14,000 in 2013, up from $13,000 last year. That’s due to an adjustment for inflation. This means that you can give any person $14,000 this year without any gift tax liability at all. Making annual gifts of the exemption amount is one of the best and easiest forms of estate planning, because it transfers assets from one generation to the next without any tax liability whatsoever. If
In a big surprise to many people, when Congress passed a law to resolve the “fiscal cliff” in January, it retained the large ($5 million-plus) estate, gift, and generation-skipping transfer tax exemptions that had been available in 2011 and 2012. These taxes will now be 40% of amounts over this exemption. Without this new law, the exemptions would have dropped to only $1 million at the start of 2013, with a tax rate of 55%. The
Often, older people will add the name of one or more of their children to their checking accounts or brokerage accounts. They might do this to make it easier for the children to help them with their financial affairs. Or they might think that it’s a clever way to avoid probate. Joint ownership can be good in some cases, but there are a number of dangers in setting things up this way. To illustrate, imagine that
If you haven’t updated your power of attorney documents in many years, it might be worth having them reviewed to see if you can take advantage of some recent changes in the tax laws. If you’re ever near death and unable to manage your affairs, your agent may be able to make some smart financial moves that will dramatically reduce taxes for your heirs. But your agent can do this only if your power of attorney
Many people have an instinctively negative reaction when they hear the term “prenuptial agreement.” That’s because, when prenups first became popular, they were often seen as weapons by which rich spouses took advantage of less wealthy, less sophisticated partners. A person who got engaged and said, “I want a prenup” was often seen as unromantic at best and scheming at worst. But the truth is, prenups often provide important advantages for both partners. They’re not always
Ken and Judy are a couple in their 30s. They recently bought a home, and they have a small child. But apart from some home equity, a retirement account at work and a life insurance policy, they don’t have a lot of assets or investments. Do they really need estate planning? Can’t they get by with a simple will from the Internet? The truth is, even a couple like Ken and Judy can benefit from a
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