Fiscal Cliff Compromise Provides Estate Tax Clarity

The so-called “fiscal cliff” included changes to the estate tax that would have been devastating for many. If no deal was made to avoid falling over the cliff in 2013 the estate tax exclusion would have been reduced to just $1 million. The maximum rate of the tax would have gone up from the 35% that was in place in 2012 to a staggering 55%.

After the crisis was averted via an 11th hour compromise we were spared the above fate.

Going forward in 2013 we have much of the same with a slight alteration. The estate tax exclusion has been set with a $5 million base that is adjusted for inflation. In 2012 this adjustment resulted in a $5.12 million exclusion. As of this writing the IRS has not determined the exact adjusted figure for 2013, but it will be somewhere in the vicinity of $5 million.

The maximum rate of the estate tax throughout 2012 was 35% as mentioned above. The fiscal cliff deal included an increase in the top rate of the federal estate tax to 40%. This also applies to the lifetime gift tax exemption and the generation-skipping transfer tax exemption.

One of the major positives that came about as a result of the compromise is the continued portability of the estate tax exclusion.

Let’s say that your spouse was to pass away without having utilized his or her exclusion. Prior to 2011 you could not use your deceased spouse’s exclusion. However, the exclusion was made portable as a result of the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Under the terms of this new deal a surviving spouse can still use the exclusion that his or her deceased spouse was entitled to as an individual taxpayer.

To learn more about the estate tax and estate planning in general download our free report: New Jersey Estate Planning Report

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Alan Augulis, Estate Planning Attorney

Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.

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