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Gifts made in the Next Year can Reduce State Estate Taxes

Some 22 states have a state estate tax or a state inheritance tax. These taxes are in addition to the federal tax. For some people, it’s possible to reduce or eliminate these state taxes by making gifts before the end of 2012.

Ordinarily, you can give up to $13,000 each year to as many people as you like without paying gift tax. Through the end of 2012, you can also make total lifetime gifts in addition to these amounts of up to $5 million. You won’t have to pay gift tax on these additional lifetime gifts, although they will reduce your estate tax exemption when you die.

That means that if you make gifts before the end of 2012 of up to $5 million (such as, for instance, gifts to trusts that will benefit your children), it will have a neutral effect on your federal estate tax – your estate won’t owe more or less as a result.

However, it can have a very positive effect on your state estate tax. By making lifetime gifts rather than bequests in a will, you’ll reduce the amount of your taxable estate, which can lower or even eliminate the amount of state estate taxes that will be owed.

If you live or own property in a state that has a state estate or inheritance tax, this is a strategy you might want to consider.

Some states let you ‘win’ a will contest while you’re still alive

People are sometimes concerned that after they die, a beneficiary (or more likely a non-beneficiary) will go to court to contest their will. Typically, a disgruntled would-be heir might claim that the person who made the will wasn’t mentally competent, or was under undue influence from some other person. These types of will contests can be very expensive, and they can cause a lot of emotional hardship within a family.

Recently, a handful of states have allowed people who make a will to go to court while they’re still alive and have a judge rule that the will is valid – thus preventing a will contest.

These states include Alaska, Arkansas, Nevada, North Dakota and Ohio. Similar legislation is pending in Delaware.

Even if you don’t live in one of those states, you might be able to obtain a court ruling there, such as by putting your assets into a revocable trust and hiring a trustee in that state.

Of course, there are many drawbacks, including the inconvenience and expense, the fact that you’ll have to make your estate planning documents public before you die, and the fact that if you later revise your estate plan, the ruling will be worthless and you’ll have to start all over again.

If you’re truly concerned about a will contest, this idea might be worth exploring. But there might also be other, less drastic methods of making sure that your intentions are carried out.

The Law Corner Estate Plans

There are four basic planning needs for all individuals independent of income, assets, debts, health, age or status. They are the Will or Will with Testamentary Trust, a Living Will,Financial Power of Attorney, and a Health Care Power of Attorney. These documents are perhaps the most important legal documents the average American will ever sign. Yet, the overwhelming majority of adults in the United States do not have one or the other. There are many misconceptions as to whether someone needs estate planning. To learn more, click the subject areas above. I am sure you will gain an understanding of the importance an estate plan plays in all our lives.

Thank you for visiting us on the web, we look forward to serving you. Call (919) 424-8319 and schedule an appointment. Please make sure to bring any prior estate planning documents with you.

The Law Corner Attorneys help people all over Wake County to include the following areas: Knightdale, Wake ForestRaleighMorrisville, Apex, Wendell, Zebulon, New Hope,CaryRolesville, Fuquay-Varina, Holly Springs, and Garner.

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