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Tax planning and 2013 - what do Michigan residents need to know?

Even though the bitter presidential election is now more than a month in our reader's rearview mirrors, no doubt many have been unable to escape the continuing political news out of our nation's capital. The discourse has been muddled and mostly unproductive, regardless of the fact that the decisions that need to be made could affect nearly every American's financial situation.

Those Michigan residents who are looking at the potential for a coming fiasco with regards to tax planning are most likely considering getting their estate plans in order based on the most current information. The potential for a drastic change in the estate tax could be the catalyst, in which case many may have already done their best to protect their estates through the use of various trusts.

The confluence of tax planning and trusts is usually done through the goal of limiting a person's tax liability -- and limiting the tax liability they would leave behind. The estate tax, a tax imposed on a person's estate when they die, is currently 35 percent. But, in 2013, that rate will jump up to 55 percent if nothing is done by Congress. However, there is also currently a $5 million exemption for this estate tax, meaning that no taxes would need to be paid by an individual's estate unless it is valued at more than that amount. That exemption will be changing in 2013 as well -- dropping all the way to only $1 million.

Protecting inheritances is a laudable goal for anyone, but the changes that will be coming -- unless Congress intervenes -- are steep and unavoidable. For our Michigan readers who may be affected by the changes, considering the benefits of a trust can be well worth the time.

Source: Yahoo! Finance, "Why You Shouldn't Die in 2013," Tim Parker, Dec. 7, 2012

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