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.
 
 

A couple of years ago a legislative measure was passed that has subsequently been named the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This legislation re-unified gift/estate tax exclusions.
In 2011 the amount of the unified gift and estate tax exclusion was $5 million. This year the exclusion has risen to $5.12 million to account for inflation.
Throughout both 2011 and 2012 the maximum rate of the gift tax, the estate tax, and the generation-skipping transfer tax has been 35%.
As a result of the above, people who have resources that do not exceed $5.12 million have been more or less immune from taxes on such transfers to their loved ones.
However, things are changing in the very near future.
This tax relief act is going to expire at the end of 2012. If this expiration takes place without any new legislation being enacted the exclusion will go down to $1 million while the top rate rises to 55%.
Those who have resources in excess of $1 million may want to consider giving gifts during the 2012 calendar year. There is, of course, a very limited window of opportunity left because the end of the year is rapidly approaching.
The act of funding certain types of trusts such as dynasty trusts could be taxable under gift tax regulations. Aside from giving direct gifts, however, there are methods that could allow you to take advantage of this larger exclusion to fund an irrevocable trust for the benefit of loved ones. These methods may allow for discounting, so an even greater amount may qualify for the exclusion.
Giving shares in a family limited partnership  or family limited liability company may also be a possibility.
These methods are relatively sophisticated, so if you are serious about wealth preservation you would do well to discuss this temporary opportunity with a qualified Reno estate planning lawyer as soon as possible.

It is logical to assume that passing along assets to your heirs after you die is not something that will cost you a lot of money. Why should it? Of course you have to retain the services of an estate planning attorney to get the correct documents in place, but after that it would seem as though no further costs should be incurred. Unfortunately however, there is indeed a formidable source of asset erosion out there that must be addressed in the form of the federal estate tax.
Who has to pay the estate tax? This is a very good question, and it is not an easy one to answer because the parameters of the estate tax are constantly changing. The dividing line that you need to keep an eye on is the estate tax exclusion. Right now the estate tax exclusion is $5 million, which means that only the portion of your estate that exceeds this amount is subject to the estate tax, which is presently carrying a 35% maximum rate. However, if the laws stay the same as they are right now, in 2013 the estate tax exclusion will be $1 million, and the top rate of the tax will be 55%. In 2008 the exclusion was $2 million; in 2009 it was $3.5 million; and during 2010 it was repealed, so you can see that it is difficult to plan ahead considering the way that the exemption is always changing.
Estate planning attorneys often emphasize the fact that your estate plan is going to have to be updated as your life changes. But in addition to the changes that take place in your own life you have to be ready to react to circumstances that are not under your control, such as alterations to the estate tax laws. The wise course of action is to stay in touch with your estate planning attorney who will keep you apprised of changes that may have an impact on your estate plan.

Last year, estate planning attorneys were placed in a difficult position because there was a lot of uncertainty regarding the future of the estate tax parameters. If the laws stayed unchanged as they were throughout most of the year, the estate tax exclusion would have been $1 million and the rate of the tax would have been 55% at the beginning of 2011. Due to provisions contained in the Bush-era tax cuts, the estate tax was repealed for 2010, but in 2009 the rate of the estate tax was 45% and the exclusion was $3.5 million.
Because of the new tax relief legislation that was signed into law by the president on December 17th, we now have a $5 million exclusion and a 35% maximum rate, but this act is set to expire at the end of 2012. As it stands right now, at the beginning of 2013 the rate of the tax will once again go back up to 55% and the exclusion will revert to the $1 million that was in place in 2002.
All this movement has a lot of people scratching their heads and this is one of the reasons why there is so much support for a permanent repeal of the estate tax. But the reality is that some people have already been victimized and treated differently than others over a period of just a few years. Let's look at a very simple example.
Let's say that you live on a block where everyone has a $5 million estate. If your across-the-street neighbor died in 2007 or 2008 when the estate tax exclusion was $2 million and the rate was 45%, his family would have had to pay the IRS $1.35 million. If your next-door neighbor died in 2009 when the exclusion was $3.5 million with that same amount of money, her heirs would have to pay $675,000. Now if your neighbor on the other side died this year, her $5 million estate wouldn't be taxed at all.
These are hundreds of thousands and even millions of dollars we're talking about that could make an enormous difference in the lives of your family members going forward into future generations. Even the most staunch pro-tax advocate would have to admit that there's something fundamentally wrong with the inconsistencies highlighted above.

As we all know politics has everything to do with spin. This is true not only during election cycles but it is also true once legislative processes have begun. We were led to believe that the changes to the estate tax that came out of the new tax act at the end of 2010 represent a positive example of true tax relief, and there is some truth in this. We now have an exemption from estate taxes of $5 million and a tax rate of 35%, which is the lowest rate in recent memory. The real question is whether there ought to be permanent repeal of the estate tax.
Why should the estate tax be repealed? There are a number of very compelling reasons and any one of them would be enough to provide logical support for a repeal.
The death tax is an instance of double, triple or more taxation. The tax brings is a very small portion of the revenue to the federal government and it is expensive to collect and enforce. It tends to break up family owned businesses and keep them from continuing because they have to be liquidated or take on substantial debt to pay the excessive tax.
Left in the hands of the family members who are anxious to see the business continue and grow, the economy will see added employment, and growth in the revenue to the government in the form of income taxes. Wealth that is inherited is invested, again allowing for growth and capital gains taxes.
There is some good news to report for those who agree that enough is enough when it comes to taxation. During the current legislative session no less than five bills (H.R. 86, H.R. 99, H.R.143, H.R. 177, and H.R. 123) have been introduced to the United States House of Representatives calling for a repeal of the estate tax. This is a positive development for anyone who is in favor of paying their fair share of taxes, but encouraging sustained growth at the same time.

One of the provisions that was included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the max rate of the estate tax to 35%. It was scheduled to return from a one year repeal with a 55% top rate, so your first thought upon the news of the change would logically be one of relief.
But we need to put the matter into perspective. Since when is a 35% tax on after-tax earnings a cause for celebration? Compared to 55% this 35% seems almost tame, but in reality it is an extremely harsh bite and an instance of double taxation regardless of the rate.
In addition, the selective nature of the tax is patently unfair. The last time it was in effect in 2009 the exclusion was $3.5 million. Now it is $5 million, so it took a baby step in the right direction, but why should some people pay the tax while others don't? Why should a $10 million estate owe $1.75 million to the IRS while a $5 million estate owes nothing?
The polarizing pro-tax talking points involve making villains of Americans who would be subject to the tax, but it could be argued that anyone who buys into this is being misled. Let's say you created something like Facebook or invented a better mousetrap and you wound up with an estate worth a billion dollars. Under this "tax relief" act, $995 million of it would be taxed at 35% as you passed it along to your heirs after your death. So the federal government would take more than $348 million.
If you had the inspiration to create such a wealth building enterprise, would you feel as though the government deserved over a third of what was earned after you pass away? Some say they could afford to lose that much, if they could create that much wealth, but could the money lost to the government be more effectively used in further research and development that would create more wealth and provide jobs for more families?
Beyond that, consider the potential good that the $348 million could do as an inheritance. If it was in the hands of your children they would invest it to stimulate commerce and create jobs. If it goes to the government, it is swallowed up into a black hole of infinite debt and does little good for anyone.
The bottom line is that the matter of the estate tax has not been resolved, the debate goes on, and many Americans are still in favor of a total and permanent repeal of this draconian federal death levy.

There were some big changes to the estate tax parameters included as part of the new legislation signed into law by the president on December 17th that is being called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
The lead story from an estate planning perspective involved the rate of the tax and exclusion amount. Rather than the $1 million exclusion that was scheduled upon the expiration of the Bush tax cuts the exclusion is set at $5 million, and the rate of the tax is now 35% rather than the 55% that was on tap.
Is worthwhile to underscore the fact that this $5 million estate tax exclusion is for each individual. So if you are married you and your spouse have a total combined estate tax exclusion of $10 million to work with going forward in 2011 and 2012. If you think this through, a logical question will arise: If I passed away would my spouse get to use my $5 million exclusion as well as his or her own?
In estate planning circles this idea is defined as the issue of "portability." To many observers the estate tax in and of itself is unfair, so as you might expect most of the rules surrounding it tend to defy logic as well. Until the passage of this new tax relief legislation in December the answer to the above question was no, your surviving spouse could not use your estate tax exclusion if you were to pass away.
The reason why this is unfair is because the estate that is accumulated by a married couple is the product of the earnings and investments of each individual; this wealth represents the combined efforts of two people. When one of these two people passes away his or her contribution to the estate still exists and it is taxable, but his or her exclusion is not available to defray the tax liability.
As a result of the new law the estate tax exclusion is now portable, and your spouse can indeed use your $5 million exclusion if either of you were to pass away. Unfortunately, the new measure is only available for the next 22 months and dies with the sunset provision in 2013. Who knows what the law will look like at that time, but at least there is now a "toe in the door."

For those Americans who have been able to build some wealth throughout their lifetimes, estate planning has a lot to do with addressing the reality of the estate tax. Many people would suggest that there should be no estate tax at all. Their most convincing argument is that any assets that are left over after you have passed away represent a remainder that you managed to hang on to after paying any number of taxes throughout your life. And the more successful you have been, the more you have been taxed.
Love it or loathe it, however, we will likely always have an estate tax. For the past 10 years, one problem with the tax is uncertainty. If the estate tax was somewhat uniform and adjusted according to market conditions it could be planned for intelligently, but who must pay it and how much must be paid has been all over the place in recent years. In 2008 the exclusion amount was $2 million; in 2009 it was $3.5 million; in 2010 the estate tax was repealed; and in 2011 the estate tax exclusion was scheduled to be just $1 million. In addition to the reduced exclusion, the rate of the tax was scheduled to rise to as much as 55% in 2011 unless there was some 11th hour legislation to alter the law.
Lo and behold, that legislation has in fact been passed and the estate tax burden will be significantly lessened going forward. The bill that is going to extend the Bush era tax cuts and provide all Americans with continued tax savings also contains an estate tax provision. In light of the enactment of this legislation the estate tax exclusion will now be $5 million, and the top rate of taxation has been reduced to 35%.
Once again, however, these changes are only temporary and are scheduled to sunset in two years. What happens on January 1, 2013? You guessed it - back to a $1 million exemption and 55% tax. Uncertainty is still the order of the day.
These changes will impact many estate plans, so you may want to pay your estate planning attorney a visit to discuss how this legislation affects your existing strategy.

Due to provisions contained the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for 2010. However, the estate tax is scheduled to return to its pre-2001 existence on January 1, 2011. For this reason it really has not had much impact on long term estate planning unless you were somehow certain that you were going to pass away in 2010.

The thing about the return of the estate tax in 2011 that is quite relevant is the fact that the exclusion amount will return to $1 million. It was $3.5 million when we last had to contend with the levy in 2009, so many estates that were previously protected are now going to be vulnerable to the estate tax. If you are in this position, or if the value of your estate has always exceeded the exclusion amount, a useful strategy that can be implemented to gain tax efficiency is that of gift giving.

The idea is that if you give gifts to your heirs while you are still alive you reduce the value of your estate to the point where it comes in under the $1 million exclusion amount. Of course, there is a gift tax to discourage this, but there are significant exemptions. The lifetime gift tax exclusion is $1 million, so you can give gifts at any time and in any increments throughout your life free of the gift tax as long as the value of these gifts does not exceed $1 million.
However, in addition to this lifetime exclusion, each taxpayer is entitled to give as much as $13,000 annually to an unlimited number of recipients, and these gifts don't count against your lifetime gift tax exclusion. You may also make unlimited educational and medical gifts, paying the tuition or medical expenses of as many people as you would like to equaling any sum of money free of the gift tax.

Contact our office today to schedule a complimentary consultation on how tax free gifts may reduce your estate's exposure to future estate taxes.