What has changed? Surprisingly little. And that has changed everything.
Now that Congress has made permanent the $5 million federal individual exemption (adjusted for inflation) for estate taxes and other provisions that take estate tax planning out of the picture for the vast majority of Americans, estate planning will look very different. Very. In fact, most of the esoteric planning that engineered tax breaks for the wealthy will still be employed, but the bar for who is “wealthy enough” to need estate tax planning has just been raised significantly.
At the end of December 2012, it was widely assumed that the $5 million individual exemption could drop to $1 million, or at least $3.5 million. Alternatively, there could be another “stop gap” extension and a need to vote again, leaving us with continued uncertainty in the estate tax arena. Yet instead, Congress surprised everyone and enacted permanent provisions that are more generous than anyone anticipated.
As a brief summary, here’s where we are on the federal estate tax front:
1) The $5 million per person exemption was extended, which will continue to be indexed for inflation.
2) The top rate increased to 40%, effective 1/1/13.
3) Portability remains in place (a post-mortem election you can take to preserve the first spouse’s exemption).
4) The $5 million gift tax exemption remains in place.
You can also check out my YouTube video from January 2 for the same summary:
Now that you know this, for the foreseeable future, many of you can simply tune out federal estate tax planning altogether. Wow. How often do lawyers say that? Tune it out? Almost never, I can assure you. But in this case, you probably can do just that. Big caveat: If you do have an estate approaching the thresholds or expect an inheritance or other infusion of cash that may put you there – lucky you! – of course, perk your ears back up and take notice.
If you would like further commentary about the new estate tax laws and their effect, take a look at luminary estate planner Martin Shenkman’s article from Financial Planning entitled: Tax Deal a Game Changer for Estate Planning.
Anne Marie Segal is admitted to practice law in Connecticut and New York and provides estate planning and other legal counsel to businesses and individuals. This information is provided for your convenience and does not give legal advice for your situation. You should consult an attorney for advice if you have questions about what type of estate plan is right for you. State estate taxes, divorce/remarriage concerns (present or future) and other factors may also affect your decisions about estate planning.
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