From the Desk of Samuel Handwerger, CPA
THE AMERICAN TAXPAYER RELIEF ACT – the All Important Estate and Gift Tax Provisions
Estate tax law is complicated enough, but this law helps to keep a majority of Americans from worrying about it, at least at the Federal level. That’s because the lifetime get of estate tax freebie is $5.12 million, indexed for inflation, and this law does not have a sunset provision to it, so it may be here for some time to come.
More good news on this tax front is that this amount includes lifetime gifts. Thus, if you had rushed into major gifting by 12-31-12, thinking that the lifetime gifting window was about to close…it didn’t. NOTE: The annual gift tax exclusion, which doesn’t count towards this lifetime amount, increased from $13,000 in 2012 to $14,000 here in 2013.
That’s not to say that you needn’t rush lifetime gifting. The powerful advantage still remains of getting future appreciation out of one’s estate and for that alone the gifting could be very valuable. Here one can readily see that the sooner the better is the general rule for this area of tax planning. This type of gifting is also referred to as an estate tax freeze. You should consider it if you own real estate or any other asset with a potentially high appreciation forecast.
The new law preserved the portability of one’s $5.12 million exemption amount to one’s spouse. That is great news as it makes it easy to plan for a total tax-free amount of $10.24 million for a husband and wife without cause for concern on how the assets are divided and who is the first to pass.
Local estate tax law may not have this portability and, therefore, may still require attention to the detail of who owns what. For example, in Maryland the exemption is $1.0 million without portability. Thus, to prevent a husband and wife from losing the ability to pass $2.0 million free of Maryland estate tax it is important to have each own outright $1.0 million in assets.