Page 1

2013 FEDERAL ESTATE AND GIFT TAX OVERVIEW


The federal estate tax is a hot-button topic, and there are widely varying perspectives on it. Some people feel as though it is a just tax while others look at it as an instance of double taxation.

Some People Feel As Though Federal Estate Tax Is Just Tax While Others Look At It As An Instance Of Double Taxation Those who are against the estate tax point out the fact that the assets that comprise your estate are what you are able to hold onto after paying innumerable taxes throughout your life. Why should the assets be taxed yet again after you pass away? Whether you are for the levy or against it the estate tax is a fact of life at the present time. However, multiple pieces of legislation have been introduced by legislators over the years that would in fact repeal the tax, so you never know what the future holds.

SETTING THE STAGE Think back to the end of 2010. During that year the estate tax was repealed entirely due to provisions contained within the Bush era tax cuts. In 2009 the

PAMELA H. POTTER KENTUCKY ESTATE PLANNING ATTORNEY

This is an advertisement.

THIS IS AN ADVERTISEMENT

2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

2


estate tax exclusion was $3.5 million, and the maximum rate was 45%. The Bush tax cuts were scheduled to expire at the end of 2010. If this would have taken place without any new legislation passing the exclusion would have been $1 million in 2011, and the maximum rate would have been 55%. In December of 2010 a legislative measure passed through both houses of Congress, and it was signed into law by the president. This piece of legislation has come to be known as the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Under the terms of this act the estate tax exclusion amount was set at $5 million for 2011 and 2012 (with an adjustment for inflation in 2012) and the maximum rate was set at 35%. The adjustment for 2012 set the exclusion at $5.12 million during that year.

FISCAL CLIFF This 2010 tax act was going to sunset at the end of 2012 just like the Bush tax cuts were going to expire at the end of 2010. In an instance of déjà vu the same situation scenario was presenting itself. If the country was to go over the "fiscal cliff” one of the automatic tax increases would be the 55% maximum rate/$1 million exclusion that was looming as 2010 was coming to a close. This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

3


However, the American Taxpayer Relief Act of 2012 was passed, and it allowed us to avert the dreaded abyss.

2013 ESTATE TAX PARAMETERS There were a lot of possibilities discussed as the powers that be were trying to reach a compromise regarding the estate tax parameters. The president had suggested a $3.5 million exclusion at some point, and many people were expecting this to be the figure that would eventually be put into place. These speculations turned out to be incorrect. As it turned out, there really haven't been very significant changes to the parameters that we had in 2011 and 2012. The base $5 million exclusion that was originally established for 2011 remains in place. With another adjustment for inflation the 2013 estate tax exclusion is $5.25 million. One thing that did change was the maximum rate of the estate tax. Rather than the 35% rate that we had in 2011 and 2012 we now have a 40% top rate.

MARRIED COUPLES It should be noted that there is an unlimited estate and gift tax exemption between married couples. But, it is useful to point out the fact that same-sex couples who are legally married in the states within which they reside cannot take advantage of this unlimited exemption. While some states recognize samesex marriages, the federal government does not. This $5.25 million exclusion is afforded to every individual. So, a married couple would have a total exclusion of $10.5 million. This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

4


The estate tax exclusion remains portable in 2013. In estate planning parlance "portability" refers to the ability of a surviving spouse to use the exclusion that was afforded to his or her deceased husband or wife. So under the current parameters your surviving spouse would have a $10.5 million exclusion to utilize after you pass away. However, portability is not automatically provided. A representative of the estate of a deceased individual must file Internal Revenue Service Form 706 within six months of the decedent's death to opt for portability.

FEDERAL GIFT TAX We have a gift tax as well as an estate tax in the United States, and the two are said to be "unified" by the IRS. The $5.25 million exclusion that we have discussed is a unified exclusion. It covers your estate as well as the taxable gifts that you have given over the course of your life. So if you gave $5.25 million in taxable gifts using this unified exclusion the entirety of your estate would be subject to the estate tax. In the above sentence we used the word "taxable" because there is an annual gift tax exemption that is separate from the unified exclusion. Under current IRS regulations the first $14,000 that you give to any one individual during a given year is exempt from the gift tax.

CONCLUSION One thing that is readily apparent when you digest the information here is the fact that laws are subject to change. If your estate is currently valued at less than This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

5


$5.25 million you may feel secure. However, the estate tax is controversial, and there are always going to be those who are clamoring for different parameters. Plus, your financial situation may change, and you could become exposed to the estate tax due to your own success. The best way to remain informed at all times is to develop an ongoing relationship with a licensed estate planning attorney. If you schedule an annual consultation you can always be certain that your present estate plan is up to date in light of possible changes to the tax laws.

REFERENCES New York Times http://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-ofuncertainty-over-gift-and-estate-taxes.html?pagewanted=all&_r=0 Forbes http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliffdeal-estate-and-gift-tax-explained/ http://www.forbes.com/sites/deborahljacobs/2013/01/17/the-deadline-everymarried-person-and-financial-advisor-needs-to-know-about/ IRS http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-andGift-Taxes

This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

6


About the Author Pamela H. Potter Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter's goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services. Experience Ms. Potter spent three years in the public section and 15 years practicing in general practice law firms before founding her own firm in 2000. She is a member of the American Academy of Estate Planning Attorneys, the National Academy of Elder Law Attorneys, the Huntington Estate Planning Council, the Real Property, Probate and Trust section of the American Bar Association, the Probate and Trust Law Section of the Kentucky Bar Association, and the Kentucky Bar Association Elder Law Committee.

The Potter Law Firm www.potterestateplanning.com ASHLAND 1620 Carter Avenue Ashland, KY 41105-2591 Phone: (606) 324-5516 Fax: (606) 324-4766 NORTHERN KENTUCKY 3940 Olympic Boulevard Suite 400 Erlanger, KY 41018 Phone: (859) 372-6656 This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

7


CHARLOTTE 15720 John J. Delaney Dr., Suite 300 Charlotte, NC 28277 Phone: (704) 944-3245 This is an advertisement.

This is an advertisement. 2013 Federal Estate and Gift Tax Overview

www.potterestateplanning.com

8

2013 Federal and Gift Tax Overview  

The federal estate tax is a hot-button topic, and there are widely varying perspectives on it. Some people feel as though it is a just tax w...