Now that the fiscal cliff has been averted — at least temporarily –
there is widespread confusion about the effect on estate planning of the 11th
hour tax law passed by the Senate on New Year’s Eve, and by the House of
Representatives one day later.
Remember all that hype over the impending “fiscal cliff” of
2013? Well, we all lucked out …Congress did indeed prevent the financial plunge
into an estate tax disaster. However, you may not be aware of how The American Taxpayer Relief Act impacts your estate, business and
retirement planning.
Perhaps one of the most important aspects of these new
provisions is that they are permanent (as “permanent” as anything in Congress
can be, anyway). By “permanent,” I mean that there is no scheduled “sunset” or
repeal. For the first time in more than a decade, we now have a set of laws
around which we can make reasonable estate and gift tax plans.
Deborah Jacobs of Forbes
wrote a succinct summary in the article, “After The Fiscal Cliff Deal: Estate And
Gift Tax Explained.” You may want to click over to read it, but here
are the highlights:
- The Basic
Exclusion Amount is set at $5.12 million per person in 2012, to be adjusted
annually for inflation. In plain English, this means that a single person may
transfer up to $5.12 million in estate value to their heirs federal estate
tax-free. - There is an unlimited
marital deduction, which means spouses can pass unlimited estate value from
one to another without federal estate taxation. - Your basic
exclusion amount also is “portable”
to your spouse, which means that a surviving spouse can apply both spouses’
basic exclusion amount to protect up to $10.24 million in estate value from
federal estate taxation. As Jacobs notes in her article, however: “Still, portability is not automatic. The
executor handling the estate of the spouse who died will need to transfer the
unused exclusion to the survivor, who can then use it to make lifetime gifts or
pass assets through his or her estate. The
prerequisite is filing an estate tax return when the first spouse dies, even if
no tax is owed.” - Lifetime
gifts are subject to the same $5.12 million basic exclusion amount, as part
of your unified credit (one credit of $5.12 million for estate transfer and
gifts made during your lifetime). Again, spouses may utilize both their mutual
basic exclusion amounts to make lifetime gifts (called gift-splitting). Remember that lifetime gifts will reduce the
exclusion amount available to the final estate. - The annual
exclusion ($14,000 per person) allows you to make lifetime gifts that don’t
count against your estate and gift tax basic
exclusion. Married couples can combine their annual exclusion amounts to
make gifts of up to $28,000 per person per year. For example, a married couple
with two adult children could gift each child $28,000 per year, for a total of
$56,000 – without utilizing their lifetime estate and gift tax basic exclusion.
Is it time for a review of your estate plan? Possibly,
especially if it has been more than two years since you last reviewed your plan
with your estate attorney. Other reasons to review your plan would be if you
have experienced significant life changes such as marriage or remarriage, the
serious illness of a spouse or other family member, the birth or adoption of a
child or grandchild, acquisition of property in another state, or a significant
change in your finances such as receiving an inheritance or selling a business.
If you have questions about how the new laws might change your estate planning,
call the office to schedule an estate plan review.
For more information about the gift tax in Torrance, CA,
please visit my estate planning website.
Reference: Forbes (January 2, 2013) “After The Fiscal Cliff Deal: Estate And Gift
Tax Explained.”