By Miami Trust Attorneys Phillip B. Rarick, Esq. and Jay R. Beskin, Esq.
We averted one Fiscal Cliff. How does the new “Taxpayer Relief Act” passed by the Senate on New Year’s Eve impact estate and gift taxes for the American family? Here are three key points:
1. Estate and Gift Tax rates are increased to 40%
Take Away: It is high, but it could have been worse. The 2012 rate was 35%; without a fiscal deal these rates were scheduled to climb to 55%.
2. Basic Exclusion Amount is $5.12 million
This is good news as well, since the amount was scheduled to be $1 million in 2013. Under the new law, only persons with estates in excess of $5.12 million (adjusted for inflation) will be required to pay estate taxes. Portability of the unused credit between spouses has been retained.
Take Away: Those who made gifts in 2012 to take advantage of the $5.12 million exemption did the smart thing. By making gifts in 2012, all future income and growth is removed from the estate – permanently. If you failed to do such planning in 2012, such planning is still advisable for large estates.
3. Lifetime annual gifts still do not count – if $14,000 or less
This is a common source of confusion. Lifetime annual gifts of $14,000 or less are not part of the Fiscal Cliff deal. We can each gift another person $14,000 per person without it counting against the lifetime exemption. Last year the annual exemption was $13,000, so we have a slight increase here. If you are married, you can “gift-split” with your spouse, which means you can double your annual gifts to $28,000 per person.
Take Away: If you are married, with two children and two grandchildren you can gift a total of $112,000 with no tax consequence. Note: If the grandchildren are minors, the smart way to ensure that every dime goes to the grandchildren and is wisely spent (say for a college or university degree) is to gift the monies to a trust dedicated to the grandchildren.
Note: The new law gives no relief to non-U.S. residents who own property in the United States. The estate tax exemption for “non-resident aliens” is still $60,000; anything above this amount is taxed at the rate of 40%. Look for a future Report on this important topic.
Conclusion. If your estate plan has been prepared or updated within the past two years by an estate planning attorney, it likely does not need to be revised unless of course there have been significant changes in the family (marriages, divorces, impaired health of key persons, etc.) If your estate plan has not been reviewed within the past two years, now, at the start of the year, is a good time to get this done. Call Christy at (305) 556-5209 to schedule a time. We welcome your comments or questions.