Planned Assets Planning Blog

The unified gift and estate tax credit is the lifetime federal credit available to each taxpayer to reduce the tax on taxable transfers that he or she makes during life and at death.

Prior to 2011 the gif tax credit schedule and estate tax credit schedule were not unified from 2004 through 2010.  That is, the maximum gift before taxes were imposed was $1,000,000 which was only a part of the estate tax exclusion during that period.  In 2011 the two were united and you could gift the full amount of the estate tax exclusion but only for 2011 and 2012. 

The unified gift and estate tax exclusion for 2012 is $5.12 million (adjusted for inflation) or $10.24 million for couples.  Taxable assets gifted or passed above these thresholds will be taxed at 35% if you die this year.  By having a unified gift and estate tax exclusion you do not have to wait until death to use the exemption.  This year an individual could gift $5.12 million and a couple $10.24 million without incurring the 35% gift tax, but you still must file the correct forms to notify IRS.

This gifting is often confused with the annual gift-tax exclusion which in 2012 is $13,000 for an individual and $26,000 for couples.  To add to the confusion, the annual gift-tax exclusion is per gift and is not a total. That is, I can give as many gifts of $13,000 to as many individual as I desire or my wife and I could give as many gifts of $26,000 as we desire, as long as they are to separate individuals.

Admittedly not many of us have $5.12 million or $10.26 million estates and with land values at current reduced levels you might think only large farms and ranches may reach this number, but even a farm or ranch of 40 to 50 acres could reach the $5.12 million level fairly easy as well as many medium to large family businesses. Next year, the estate and gift tax exemption is set to return to $1 million ($2 million for couples) and the tax for taxable property over that amount increased to 55%.  Will it, most likely not, but the one thing we can count on is the unified gift and tax exclusion will not remain at $5.12 million and most likely will not remain unified.

Numbers often mentioned is an estate tax exclusion of $3.5 million and gift tax exclusion of $1 million.  This means that for purposes of transferring property 2012 is a window about to be shut.  Assuming you don’t plan to die this year, we are talking about gifting of property.

The problem for small business is most families have no idea how much the family business is worth or how much it may be worth in the future.  Then there is the problem of control and an inability to turn loose of control.  But there are ways to transfer ownership without giving up control or losing income.  The other question is does the next generation of family members want to be involve in the business or even have the ability to take control and survive?  Extending ownership of a family business is a very difficult question and one without an answer sometimes until the very last moment, but the prudent business owner will not let this opportunity pass without significant investigation. 

Family farms and ranches are usually somewhat more stable in selecting future ownership and why 2012 is an important benchmark.  If future ownership can be qualified 2012 is the last year ownership may be transferred tax effectively.  Again it is not always necessary to give up full control or income making the transfer, but any family with farm or ranch of 40 acres or more should consider now how much it might cost to pass ownership at death in the future.

Unlike standard businesses, most of the money available to the farm & ranch businesses is tied up in land, equipment, the next crop or all three.  Estate tax is due within 9 months, and although there are delaying alternatives all are expensive.  If you have not obtained enough life insurance and do not have enough cash on hand how will you meet the tax and do you really want to give up the cash?  Starting the transition now may allow the farm to remain within the family rather than most or some of it remaining in the family.

Whether a nonagricultural family business, farm or ranch the window will shut December 31^st, not considering your alternatives only available for the rest of 2012 is not a viable option for any family business.

Is now the time to have a conversation concerning your estate plans and how you may tax effectively maintain the family business, farm or ranch within the family.  Time is not on your side, 2012 will be over before you realize, and we are not likely to see these tax rates again in our life time. A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

For decades, tax-deferral has been one of the most powerful ideas advocated by financial advisors, the government and financial press.  But is it still the best option for everyone?

It’s often quoted “Why pay income tax now on money you don’t need now?  Instead, you can defer taxes, grow more assets, and ultimately have more money after-tax.”  This concept has always been based on the belief you will be in a lower tax bracket when you retire, but is this still the case? 

To answer this question we must first look at look at Federal, not to mention state, income tax history.  Federal taxes started out at a low 7% for the highest income earners, in 1944 it moved to 95% and over the years it has average 65% for the highest earners.  Now the highest earners are paying 35% and capital gains is at a low 15%.  As we look at the economy, follow the financial press, review our corporate national debt and those in political power do we really believe tax rate are going to remain at this level?  Furthermore we are well aware that tax increases are being pushed for those in the highest brackets that is not where most of the money is.  While it may help to increase the 35% bracket and even capital gains eventually it falls on the middle brackets (25 & 28%) to provide the money and allow 55% of the nation not to pay income taxes.

Deferral of taxes has always made sense, up until now:

Change is coming and coming quickly and it is past time for all of us to reconsider the concept of deferring tax on our investments, above any match of our employers. The reasons are many but the most obvious:

1.     Probability income tax rate will increase on the affluent Americans followed by an increase on the rest of us.

2.     Unusually low return on investments, the volatile market and unlimited printing of money by the Fed.

3.     Our tax and spend government.

If you believe taxes will go up, then is now the time to defer income?  Taxes are on sale and we might be better advised to move money from or stop deferral of investment, pay the tax and move assets to tax free investments for the future.

With the Billions of dollars that has been printed with nothing to back them up except national faith and credit at some point someone must pay and this is normally called inflation. The value of the dollar becomes less, we have to make more to buy the same products and even if brackets stayed level inflation will push us to a new level of tax.

Where is the largest pool of untaxed money today, it’s in our IRAs, 401(k)s and qualified plans.  If this is where the money is, don’t you think the government is considering how to get more of it?  Would you borrow money from a bank that says you can borrow as much as you like, but we will tell you when it’s time to pay it back and what the rate is?  Even if you do not need the money at 70.5 you have to start taking it due to Require Minimum Distributions.

The question you must ask yourself, whose retirement am I planning anyway, mine or the government? 

Is now the time to have a conversation concerning your plans for retirement income and how you can develop retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

A typical retired couple may add as much as 20% to their after-tax retirement income by coordinating when to use different categories of their money in retirement?

Most individuals have three financial legs to support them in retirement: (1) Social security benefit; (2) qualified retirement savings and (3) non-qualified savings and investments.  A majority of couples and individuals may by selectively coordinating how they use assets within these three sources actually improve after-tax retirement income up to 20%.  Unfortunately, most overlook the importance of coordinating use of available assets, resulting in higher tax.

Why?  There are several reasons why many Americans lose up to 20% of possible retirement income:

1. Knowledge:  The United States Income Tax system actual consist of two systems.  Those understanding the system, rules and loop holes always pay less in percentage of income.  Of course those who do not have this knowledge always pay a greater percentage of income.  The problem is most are not even aware of what they do not know and spend most of their energy obtaining minor savings and missing savings opportunities contributing to successful retirement.
2. Planning:  The majority of American retired retire without a written retirement plan.  Successful business requires an effective written plan if it hopes to succeed and your retirement is your business.
3. Conventional Wisdom:  Too many professional planners, as well as pre and post retired people stick with conventional wisdom even if it is wrong.  As all of us have told our children, “just because everyone else is doing it does not make it right”.  Conventional wisdom may actually cost you 20% more in tax than necessary.