Our mission is to arm consumers and professional advisors in our community with the information needed to make informed decisions about their family’s and client’s future. With that purpose, we are pleased to announce the rollout of our new and improved Estate Planning website! The website was created to serve as a resource center for families when planning their estate strategies. Visitors will find useful information regarding probate, business planning, asset protection, incapacity planning, special needs planning and a variety of other valuable topics. The new site also has distinct areas exclusively for clients, consumers and financial advisors and offers easy-to-understand information on how to protect assets and prepare an estate for inheritance with minimum cost and hassle to their loved ones. Packed with valuable information, our website is a necessary tool in developing an effective estate plan that ensures families will enjoy a secure and worry-free future. We hope you enjoy the new site. If you have any questions, please feel free to contact us.
In case you haven’t heard, the New Year brought a new law recently signed by the President. To avoid the country from falling off the “fiscal cliff,” the “American Taxpayer Relief Act” was approved on New Year’s Day. The approval and signing of this new law may affect the future of your estate plan and your estate taxes.
Regarding federal estate taxes, this new law makes almost all of the previous tax provisions, commonly known as ”TRA 2010,” permanent, with the exception of the tax rate. This means there is an estate tax exclusion of $5 million that will be adjusted for inflation. So for 2013, the exclusion is $5.25 million. The permanent provisions are combined with the gift tax and can be used either after death or while the person is still alive. The tax rate is now capped at 40% instead of the prior 35%.
The “portability” provision from TRA 2010 is also retained. This means that the estate tax exclusion amount of the first spouse to die may be used by their surviving spouse, assuming an estate tax return is filed for the pre-deceasing spouse.
Regarding state estate taxes, as with the prior law, they remain deductible rather than a credit (as was the case many years ago).
The Generation Skipping Tax (GST) exemption is set at $5 million and is also adjusted for inflation. As in the prior law, the GST exemption is not portable. There are, however, special trusts that can preserve the GST exemption of the first spouse to die.
The new law affects everyone’s income taxes. The existing rates on incomes below $400,000 (single) and $450,000 (married, filing joint) have been set permanently to the current level. For incomes over that amount, the rate will increase from 35% to 39.6%, where it was before 2001. In addition, this income bracket will see a raise in qualified dividend and capital gain income tax rates from 15% to 20%. Those tax rates will not change for lower income amounts.
When it comes to “charitable rollover” IRAs, those provisions will be extended for 2012 and 2013 only. This means that an individual over age 70 ½ can give up to $100,000 from their IRA without taking that amount into income. If you are planning to make or have made charitable contributions from your IRA, this is good to know because the deduction for a normal contribution, without the benefit of a “charitable rollover,” may be capped or not offset the income.
On the spending side, what are commonly known as “sequestration cuts,” which were to start on January 1, have now been delayed for two months. All of these issues will have to be addressed again. So what is slated as “permanent” under this Act may not end up being as permanent as we have been told.
Where does that leave us today? Before you change your existing estate plan, create a new plan or gift to someone, it is important to consult with an experienced estate planning attorney and tax professional who is familiar with these changes and who can show you what will be in your best interest, legally and financially. They will make recommendations about any changes you may need to make to your estate plan now and advise you on what may need to be changed or updated in the future.
There are only a few days left before the clock strikes midnight on December 31st and the tax law changes. Or will it?
As of this writing, the law to which it will change will be the pre-EGTRRA/TRA law. In other words, currently in 2012, individuals with estates under $5.12 million are not subject to federal gift or estate tax. However, if this law expires, estates larger than $1 million will become taxable at the beginning of 2013 and we will back to a $1 million applicable exclusion per person. If you think only the super-rich need to worry about estate and gift taxes, you may want to think again. 2013 will not be a very happy New Year for many because of the tax changes it might bring.
So for now, we wait to see if President Obama and Congress will come to an early resolution on the issue before the “Bush Tax Cuts” expire on January 1, 2013. Since both sides have been quiet on this issue, it is not clear whether the estate tax is even part of the negotiation on the “fiscal cliff.”
Many things will change if we revert to the old law. Because the $1 million exemption will affect so many people, estate taxes will, once again, become a more significant reason to prepare an estate plan that will help them avoid some of these costly taxes. In the past few years, we have seen a shift in what people have been focused on planning for – tax issues have been less of a priority, instead more attention has been given to leaving a lasting legacy, often non-financial, to their loved ones, as well as protecting their assets, providing remarriage and divorce protection, or dealing with Medicaid concerns.
Taxes will likely always be an important planning factor for many, especially after January 1st. However, it is still important to remember that today’s diverse, modern family has many priorities to plan for other than just taxes.