Throughout 2012 there was a lot of uncertainty about the estate tax parameters that would be in place for 2013. Last year the estate tax exclusion was $5.12 million and the maximum rate of the tax was 35%.
These provisions resulted from the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
This act was scheduled to sunset at the end of 2012. If Congress had not passed new legislation, the estate tax exclusion would have decreased to $1 million, with an increase in the top rate to 55%.
The American Taxpayer Relief Act of 2012 has prevented this scenario.
In 2013, the estate tax rate has gone up from 35% to 40%. This increase also applies to the generation-skipping transfer tax and the gift tax.
No increase in taxation is going to be welcomed by those who are subject to the estate tax, but a 5% increase is better than a 20% increase.
This increase in the rate is really the only thing that has changed. The tax relief act of 2010 instituted a $5 million estate tax exclusion that is adjusted annually for inflation. This standard remains the same.
The tax relief act also made the estate tax exclusion portable, which means that a surviving spouse could use the exclusion that his or her deceased spouse was entitled to. In 2013 the estate tax exclusion remains portable.
Significantly, the tax relief act just passed is “permanent,” or does not include a sunset provision, which should provide greater certainty in estate planning.
If you are interested in discussing the effect of this law on your planning, contact us for a free consultation. We can be reached electronically through this link: Free Estate Planning Consultation
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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