Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

November 5, 2012
Are there inheritance taxes on stock I leave to my heirs?

Q: I wish to will money held in an account at a major stock trading firm to one of my children for distribution among my adult children and grandchildren. Are there inheritance and/or gift taxes involved in the passing of this money (which is in stock)?

Jerry
Rio Vista

A: Current tax law contains inheritance and gift taxes, as well as a "generation skipping transfer tax" that may apply to transfers to grandchildren. If you leave stock to your children and grandchildren, the transfers may be subject to the federal estate tax.

Under current law, there is a credit against the estate tax which equates to $5,120,000 dollars of net taxable estate. In short, if you die this year, you can leave up to $5.12 million to your children and grandchildren and not incur any estate tax, assuming you have not made any taxable gifts during your lifetime.

The $5.12 million credit equivalent is currently set to drop to $1 million in 2013 unless Congress changes the law. So there is uncertainty as to how much you may be able to leave to your heirs without incurring estate tax after this year. The top estate tax rate, which is now 35 percent, is set to increase to 55 percent, absent action by Congress and the President.

If you leave assets to your grandchildren, your estate may be subject to the "generation skipping transfer tax." This tax applies to transfers that skip a generation. Under current law, there is an exemption equal to $5,120,000 for generation skipping transfers. This exemption is set to expire at the end of this year and decrease to $1 million plus an inflation adjustment from 2001.

There is also a gift tax that applies to transfers during the donor's lifetime. The same credit amounts and tax rates apply to gifts as to transfers at death. If you have made taxable gifts during life, you may have used some of your credit, which may reduce the amount available to reduce the estate tax.

There are estate planning techniques that can be used to legally minimize transfer taxes. If your estate is large enough, you may want to consult an estate planning professional.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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