special feature: ATRA RELIEF
Plenty of Opportunities for Advanced Advisors
Plenty of Opportunities for Advanced Advisors S ure, the estate tax income exclusion is high, but the new law left many favorite tools in the expert’s toolbox. By Gonzalo Garcia and Liz Weber Michel
T
he fiscal cliff-averting American Taxpayer Relief Act packed many things into a bulky bill but the most significant component for life insurance was the permanent estate tax. Here’s even better news. Even though some advanced life insurance and estate-planning advisors might have assumed much of their market disappeared, they should rest assured that many of their favorite tools are still available. Also, they should keep in mind that their clients’ income will likely far outpace the law’s income exclusion. First, a little background: The act retains the $5 million unified credit exclu-
sion amount per individual, $10 million per couple, but makes it permanent for estates and gifts made after Dec. 31, 2012, and indexes the exclusion for inflation. The exclusion will be increased this year over its current level of $5.12 million. Speculation is that this will increase to $5.25 million. The law increases the maximum gift and estate tax rate from 35 percent to 40 percent. In addition, the exclusion amount (for gift and estate taxes) remains unified and is permanently extended for estates and gifts made after Dec. 31, 2012. Portability, between spouses, of the unused credit is also made permanent as well as the generation-skipping transfer tax provisions. The law also extends the deduction for state estate taxes and it repealed the 5 percent surtax on estates larger than $10 million. There was good news in what the act
did not do. President Barack Obama’s 2012 budget proposal contained provisions that would have significantly affected gift and estate planning. Fortunately, these provisions were not incorporated into the law and will continue to provide individuals and families with gift and estate planning opportunities. OK, so now what? How do we help mass affluent and affluent clients plan in a more certain environment? First, assuming the annual exclusion amount rises to $5.25 million (which is a 1.02 percent increase over 2012), estates will no doubt grow faster than the indexing. So, if an individual has a $5.25 million estate in 2013 and that estate grows at a rate of 5 percent or 7 percent, it will outpace the indexing of the exclusion amount and the delta will be subject to estate taxation. As you can see in the accompanying chart, the estate is growing at a rate far
Estate with Growth at 5% Per Year
Annual Exclusion Amount Indexed at 1.025% Per Year
1
$5,250,000
$5,250,000
$0
$0
$0
2
$5,512,500
$5,381,250
$131,250
$5,617,500
$236,250
10
$8,144,473
$6,556,531
$1,587,934
$9,651,911
$3,095,380
15
$10,394,641
$7,418,113
$2,976,528
$13,537,304
$6,119,192
20
$13,266,489
$8,392,913
$4,873,575
$18,986,770
$10,593,856
30
$21,609,712
$10,743,639
$10,866,073
$37,349,850
$26,606,211
35
$27,580,077
$12,115,441
$15,424,636
$52,385,095
$40,229,655
Year
Estate with Growth at 7% Per Year
Subject to Estate Tax
Subject to Estate Tax
February 2013 » InsuranceNewsNet Magazine
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