January 23, 2013
Some Helpful Points on Estate Planning in 2013
- Federal estate and gift tax exemption is now permanently at $5,000,000 with annual inflation adjustments.
- It is important to note that this is only applicable at the federal level, not at the state level. So estate tax planning for most people will now be focused on minimizing state inheritance taxes.
- Once assets are above the exemption threshold, the estate tax rate is 40%.
- The exemption for lifetime gifts and transfers at death are now unified. So if you use your exemption during your lifetime, it is not available when you die.
- Portability is now permanent. This allows a surviving spouse to use an exemption that a deceased spouse did not use before his or her death.
- Fromm stresses that portability should be looked at as a fallback position where there was no estate planning done.
- There are some limitations and concerns with portability that should be considered, especially in a second marriage.
- Portability does not save the GST exemption. Where grandchildren and future generation s are part of an estate plan, portability will not save the unused GST tax exemption of the first spouse to die. In these cases, using a dynasty trust is the better course of action.
- Annual donee exclusion: This is not party of the tax-law changes, but it is a traditional tool that allows for annual tax-free gifts of $14,000 in 2013. Taxpayers can now give up to $14,000 to as many people as they want each year without using up their unified credit or paying a gift tax.
- Capital gains on appreciated assets will now be taxed at 20% rate for taxpayers with income above certain thresholds. Capital gains below these thresholds will still be taxed at the 15% rate.
- Fromm notes an important tax basis rule here: "Taxpayers who receive appreciated property by a lifetime gift take a carryover basis, while beneficiaries who receive assets at the decedent's death get a step up in basis to the date of death value of such assets received."
- Other notes:
- Create an estate plan that addresses your unique situation.
- In younger families, beyond planning associated with taxes, it is important to set up a guardian for children and setting up a trust for protection of their assets and with an appropriate distribution scheme.
- Those with second marriages may want to seek help to stay on top of special considerations that apply to them in estate planning.
- Special needs trusts may be appropriate for those with disabled children
- Using an experienced estate planner is the best way to consider different strategies and make a plan that is right for you.
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Even under the new scheme, use of ByPass trusts may continue to have a place for non-tax purposes, e.g. to address parental desires in 2nd marriages to provide for the surviving spouse, while still leaving a legacy for the deceased spouse's own children as ultimate remainder beneficiaries of the deceased parent's share.
Posted by: Gene Osofsky | Jan 23, 2013 2:08:25 PM