"Fiscal Cliff" Tax Legislation: What's it Mean to Me? - Part I

Posted By Jay Kaufman || 2-Jan-2013

For Clients, Advisors & Community: Happy New Year!

We begin the year by helping you understand the impact of the “Fiscal Cliff” legislation passed by Congress while we were all partying or sleeping. (I actually was reading the bill, H.R. 8, in my pajamas). I’m not going to attempt a summary in one blog post. I am going to break it down into a number of little sections and post every day until I cover everything that’s important for you to know. I want to focus not just on what the law is, but what it really means to you, your family and your pocketbook.

Let’s start with basic estate planning and the estate and gift tax. In short, the legislation maintains the law as it existed in 2012. The lifetime estate tax exemption remains at $5,120,000. The lifetime gift tax exemption is also $5,120,000. The exemption for husband and wife together is $10,240,000. That exemption is “portable” between the two spouses. (If one spouse only uses $4,000,000, under certain circumstances, $6,000,000 can be available to the surviving spouse).

The only real change is that the maximum estate and gift tax rate for taxable estates increases from 35% to 40%.

PERMANENT: The word is that this change is “permanent”. If that is true, it will give families some needed stability in planning. I am skeptical. The Federal government needs so much revenue that the “rich people” are always a target.

GOOD NEWS: Gifting programs can continue unabated all the way to the $5,120,000 limit per person. Couples can leave $10,240,000 to their heirs without estate tax. This makes estate planning, particularly for business owners, much more flexible.

ILLINOIS RESIDENTS: Be aware! Even though the Federal estate tax exemption is $5,120,000, the Illinois estate tax exemption in 2013 is $4,000,000 per person. Thus, for individuals with an estate over $4,000,000 it is necessary to file a Federal estate tax return AND an Illinois return. In many cases, surprisingly, tax will be due to the State of Illinois. ( Surprise! Suprise!)

ESTATE PLAN REVISIONS: If we’ve reviewed and updated your estate plan in 2011 or 2012, the odds are no changes for the tax law change are required. However, if your estate plan has not been reviewed since 2010, it should be updated!

MORE TO COME: Tomorrow, I’ll write about the impact of the new legislation on your income taxes. Keep an eye on my blog. I’ll be attending the 2013 Heckerling Institute on Estate Planning Beginning January 14th. I’m planning to tweet (@KaufmanLawGroup) and write about really important developments from there as well.

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