Thursday, January 3, 2013
As I have previously discussed, there were several changes to the estate and gift tax laws. Here is summary of all of the changes:
- The fiscal cliff bill does not alter the current the lifetime gift and estate tax exclusion amount of $5.12 million, but it the tax on inherited income exceeding the exclusion has increased from 35% to 40%.
- The bill also does not affect the marital deduction.
- The portability law that was passed in 2010 was made permanent by the fiscal cliff bill; however, portability is still not automatic. A person looking to obtain their spouse's unused exclusion must still follow the proper procedure. According to Forbes, "The executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor...[t]he prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed." There is a 9 month period in which the executor must fie the estate tax return. A 6 month extension is allowed. If the executor fails to meet this deadline, then the spouse will lose his or her right to portability.
- It is important to remember that not all gifts apply to the lifetime exclusion. For example, a taxpayer may give upwards of $14,000 under the annual gift tax exclusion. Spouses can double this amount to give upwards of $28,000 to as many people as they want without affecting the lifetime gift and estate tax exclusion.
See Deborah L. Jacobs, The Fiscal Cliff Deal: Estate and Gift Tax Explained, Forbes, Jan. 2, 2013.