The estate tax parameters we could expect for 2013 were hazy throughout last year. At the end of 2010 a piece of legislation called the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was passed that implemented the rules for 2011 and 2012.
Due to provisions contained within this act the estate tax exclusion was $5 million at its base with annual adjustments for inflation. The estate tax, the gift tax, the generation-skipping transfer tax was set at a flat rate of 35%.
This tax relief act was scheduled to sunset at the end of 2012. Under laws that existed throughout the year the maximum rate would automatically go up to 55% while the exclusion went down to $1 million upon the expiration of this measure. This tax increase was one of the perils that we would have faced had the country gone "over the cliff."
Because of the agreement that was reached around the first of the year we avoided the cliff and the estate tax parameters are largely unchanged. We still have a $5 million base exclusion adjusted for inflation. The Internal Revenue Service has announced that adjustment, making the estate tax exclusion $5.25 million in 2013.
The top rate of the federal estate tax has been raised, but the increase is not anywhere near as severe as it could have been. In 2013 the rate has gone up from 35% to 40%, and once again this applies to the gift tax and the generation-skipping transfer tax as well.
Though things could have been worse 40% of your taxable legacy is a lot of money. It is however possible to implement tax efficiency strategies that will preserve your wealth.
As Reno estate planning attorneys we have a thorough understanding of tax laws, and we urge you to contact us to arrange for a consultation if you would like to tap into some professional expertise.
We can be reached by phone at 775-823-WILL (9455), or online at www.wealth-counselors.com.