Estate tax laws finally become more permanent
For 2013, no news regarding drastic changes to the estate tax law was good news. For years, Congress had looked to the 2013 deadline that would have reverted the estate tax to their 2001 rates and reduced the estate tax exemption from $5 million to $1 million.
April 16, 2013
Estate tax laws finally become more permanentArticle provided by The Kridel Law Group
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For 2013, no news regarding drastic changes to the estate tax law was good news. For years, Congress had looked to the 2013 deadline that would have reverted the estate tax to their 2001 rates and reduced the estate tax exemption from $5 million to $1 million.
At the end of last year's so-called "Fiscal Cliff" negotiations, Congress passed The American Taxpayer Relief Act of 2012. Among other provisions, including altering the income tax, this Act set the top rate for the estate tax, and perhaps most importantly made it permanent. Having a more permanent solution may make 2013 a time to revisit or create an estate plan.
The estate tax exemption is $5 million, adjusted for inflation. That means in 2013, a single estate would be exempt from federal estate taxes below $5.25 million.
After the $5 million exemption is excluded, the highest rate an estate can be taxed is 40 percent, which is an increase from 2012's top rate of 35 percent. Had Congress not acted in 2012, however, it would have spiked to 55 percent.
The spouse of a deceased person is still able to keep the entirety of the estate without paying any estate taxes. Spouses are also now able to use each other's unused exemptions, meaning married couples are exempt from estate tax for $10.5 million (commonly referred to as "portability.")
The American Taxpayer Relief Act of 2012
In addition to permanent estate and gift tax exemptions, the annual gift tax exemption rose to $14,000 for individuals and $28,000 for married couples. Because of the increase in the estate tax rate, it makes it more important than ever couples and individuals potentially subject to the estate tax to use up their annual exemptions. Annual gift exemptions do not count toward the lifetime gift tax exemption.
The income tax was also modified in the Act. The taxable income for earners making over $400,000 individually and $450,000 as a married couple are now subject to a 39.6 percent rate. There is also a 20 percent tax rate on long-term capital gains and dividends for taxpayers for high earners. The Act also reduced Itemized Deductions and personal exemptions.
Other benefits
An estate plan should be updated regularly to maximize potential tax savings and ensure money is distributed to beneficiaries according to the wishes of the deceased. With some added certainty to estate tax laws, 2013 is a good year to revise or create an estate plan. Married couples and individuals looking to maximize potential tax savings should contact an experienced estate planning attorney to discuss their situation.