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Some People Feel As Though Federal Estate Tax Is Just Tax While Others Look At It As An Instance Of Double Taxation
PAMELA H. POTTER
KENTUCKY ESTATE PLANNING ATTORNEY This is an advertisement.
The federal estate tax is a hot-button topic, and there are widely varying perspectives on it. Some people feel as though it is a just tax while others look at it as an instance of double taxation. Those who are against the estate tax point out the fact that the assets that comprise your estate are what you are able to hold onto after paying innumerable taxes throughout your life. Why should the assets be taxed yet again after you pass away? Whether you are for the levy or against it the estate tax is a fact of life at the present time. However, multiple pieces of legislation have been introduced by legislators over the years that would in fact repeal the tax, so you never know what the future holds.
Reauthorization and Job Creation Act of 2010. Under the terms of this act the estate tax exclusion amount was set at $5 million for 2011 and 2012 (with an adjustment for inflation in 2012) and the maximum rate was set at 35%. The adjustment for 2012 set the exclusion at $5.12 million during that year.
FISCAL CLIFF
This 2010 tax act was going to sunset at the end of 2012 just like the Bush tax cuts were going to expire at the end of 2010. In an instance of dj vu the same situation scenario was presenting itself. If the country was to go over the "fiscal cliff one of the automatic tax increases would be the 55% maximum rate/$1 million exclusion that was looming as 2010 was coming to a close. However, the American Taxpayer Relief Act of 2012 was passed, and it allowed us to avert the dreaded abyss.
expecting this to be the figure that would eventually be put into place. These speculations turned out to be incorrect. As it turned out, there really haven't been very significant changes to the parameters that we had in 2011 and 2012. The base $5 million exclusion that was originally established for 2011 remains in place. With another adjustment for inflation the 2013 estate tax exclusion is $5.25 million. One thing that did change was the maximum rate of the estate tax. Rather than the 35% rate that we had in 2011 and 2012 we now have a 40% top rate.
MARRIED COUPLES
It should be noted that there is an unlimited estate and gift tax exemption between married couples. This $5.25 million exclusion is afforded to every individual. So, a married couple would have a total exclusion of $10.5 million. The estate tax exclusion remains portable in 2013. In estate planning parlance "portability" refers to the ability of a surviving spouse to use the exclusion that was afforded to his or her deceased husband or wife. So under the current parameters your surviving spouse would have a $10.5 million exclusion to utilize after you pass away. However, portability is not automatically provided. A representative of the estate of a deceased individual must file Internal Revenue Service Form 706 within six months of the decedent's death to opt for portability.
said to be "unified" by the IRS. The $5.25 million exclusion that we have discussed is a unified exclusion. It covers your estate as well as the taxable gifts that you have given over the course of your life. So if you gave $5.25 million in taxable gifts using this unified exclusion the entirety of your estate would be subject to the estate tax. In the above sentence we used the word "taxable" because there is an annual gift tax exemption that is separate from the unified exclusion. Under current IRS regulations the first $14,000 that you give to any one individual during a given year is exempt from the gift tax.
CONCLUSION
One thing that is readily apparent when you digest the information here is the fact that laws are subject to change. If your estate is currently valued at less than $5.25 million you may feel secure. However, the estate tax is controversial, and there are always going to be those who are clamoring for different parameters. Plus, your financial situation may change, and you could become exposed to the estate tax due to your own success. The best way to remain informed at all times is to develop an ongoing relationship with a licensed estate planning attorney. If you schedule an annual consultation you can always be certain that your present estate plan is up to date in light of possible changes to the tax laws.
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REFERENCES
New York Times http://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-ofuncertainty-over-gift-and-estate-taxes.html?pagewanted=all&_r=0 Forbes http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliffdeal-estate-and-gift-tax-explained/ http://www.forbes.com/sites/deborahljacobs/2013/01/17/the-deadline-everymarried-person-and-financial-advisor-needs-to-know-about/ IRS http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-andGift-Taxes
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The Potter Law Firm www.potterestateplanning.com ASHLAND 1620 Carter Avenue Ashland, KY 41105-2591 Phone: (606) 324-5516 Fax: (606) 324-4766 NORTHERN KENTUCKY 7310 Turfway Road Suite 550 Florence, KY 41042 Phone: (859) 372-6656 CHARLOTTE 15720 John J. Delaney Dr., Suite 300 Charlotte, NC 28277 Phone: (704) 944-3245 This is an advertisement. This is an advertisement.