Several Bush era tax cuts are set to expire on Dec. 31, 2012. As Congress argues and debates about whether to extend the tax cuts or let them expire, New Jersey residents are left to figure out how to best protect their assets. Estate planning now may save thousands in tax dollars later.
The first of the tax cuts set to expire is the 15% capital gains tax, which is set to increase to 20%. The second is that dividends will be taxed as ordinary income, whereas right now, they are taxed at no more than 15%. The third tax cut set to expire is the gift-tax exemption. Through the end of this year, people may give up to $5.12 million tax free, with anything more than that taxed at a maximum of 35%. If Congress lets the tax exemption expire, the lifetime maximum will drop to $1 million, and anything over that amount will be taxed up to 55%.
If these tax cuts are allowed to lapse, thousands of New Jersey residents may lose thousands of dollars without significant changes to their current estate plans. Right now, estate planning is a guessing game. A lot of people around the country are taking the "better safe than sorry" approach and doing what they can to take advantage of the current laws.
Estate planning is all about being prepared, and now is one of those times when it pays to be prepared. People should take this opportunity to review their estate plans if they have them, or get an estate plan if they don't. Regardless of what Congress decides to do, protecting assets and avoiding excessive tax bills is always good advice.
Source: Reuters, "Get a jump on the tax-change stalemate," Jennifer Hoyt Cummings, Aug. 3, 2012