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Taxes may impact estate planning considerations

As we get older, we know that the time that we have remaining is getting shorter. While we all want to think that we still have a long way to go, things can change fast. It can be uncomfortable to plan for such events, but it is important that we know that our loved ones will be provided for if we pass away.

When considering estate planning needs, one should remember that there are several components that are often involved. Living wills, or advanced health care directives, let family members know what kind of care the individual would like to receive in the event that he or she becomes incapacitated. Wills state what which individuals receive specified property after an individual passes away, while trusts can be drafted to ensure that family members with special needs continue to receive financial support.

Those creating an estate plan should be aware of the potential tax consequences that may arise, and plan accordingly. Failing to take this into consideration could result in a significant amount of assets being used to pay for these taxes, diminishing what can be passed on to loved ones.

Recent federal tax law changes could have a major impact upon those considering new or with existing estate plans. When the country was approaching the fiscal cliff, if an agreement was not reached, the amount that individuals could exempt from estate taxes would have dropped to $1 million. The remainder of the estate would have been taxed at 55 percent.

Once the agreement was in place, the amounts were set at $5.25 million, with a top tax rate of 40 percent. This allows most individuals to pass along their assets without having to be too concerned with potential federal tax issues.

Some individuals may decide to distribute some of their assets while they are still alive, perhaps because a family member may be experiencing financial problems or is in need of assistance. Under current laws, individuals may gift up to $14,000 per year, per person, and not have to worry about federal taxes. This amount will be subtracted from the $5.25 million exemption amount, so large estates may have to consider all of their options before handing out these gifts to friends and family.

It can be difficult to think about what will happen after you pass away, but you need to make sure that you have a plan in place. Speak to an experienced estate planning attorney about creating documents that ensure your wishes will be carried out. If you do not take these steps, property may pass according to the laws of the state, which can exclude certain individuals.


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