(PRWEB) July 20, 2013
The Law Firm of Pozzuolo Rodden, P.C., Philadelphia Estate Planning Attorneys, announces the release of the article “Hot Topics in Estate Planning- 2013“. If you would like to read more, please read the full estate planning article and other corporate law or estate planning articles and newsletters at: http://www.pozzuolo.com.
Hot Topics in Estate Planning- 2013
I. The American Taxpayer Relief Act of 2012 and the “end” of the Bush era tax cuts.
On January 1, 2013, the Bush era tax cuts expired. The Bush era tax cuts were various tax code changes that had been enacted during the George Bush’s presidency. Originally scheduled to expire at the end of 2010, the tax cuts were extended for two more years until the end of 2012. The expiration of the tax cuts, among other things, was supposed to cause the US to go over the “fiscal cliff”. However, on January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012, which reinstated many of the tax cuts, effective retroactively to January 1st.
The enactment of the American Taxpayer Relief Act of 2012 affected various tax provisions related to income taxes, transfer taxes, IRAs, and pensions. When reviewing the Act’s effect on gift and estate taxes, one sees that there was not dramatic change from the immediately prior year. However, there is good news in that the passage of the Act prevented severe tax rates from being implemented.
A. Estate Tax. The American Taxpayer Relief Act set the maximum federal estate tax rate at 40%. The Act also includes a $5 million dollar estate tax exclusion which is adjusted for inflation. Immediately before the Act, the maximum estate tax rate was set at 35% with a $5 million inflation adjusted exclusion. Had the Act not been passed, the top estate tax rate would have been 55% with an exclusion amount of only $1 million, indexed for inflation. The practical effects of the Act are significant. If the Act had not been passed, a person dying with a $2 million taxable estate could potentially have to pay over a $1 million in estate taxes on the estate.
The American Taxpayer Relief Act also provides for “portability” between spouses. In other words, the estate of the first to die spouse may make a portability election to permit the surviving spouse to use the first to die spouse’s unused estate tax exclusion amount on the surviving spouse’s estate. The practical effect of this is to increase the surviving spouse’s estate’s exclusion amount to potentially $10 million. Without enactment of the Act, portability would not be available. This could be problematic for those couples near the threshold of the estate tax exclusion in that while individually, neither of their estates was large enough to trigger taxes, but when coupled together, the value of the estate would cross the tax threshold. Thus, when the first spouse dies and leaves everything to the other spouse, the other spouse’s estate would potentially have to pay taxes on the accumulated estate.
B. Gift Tax. Similar to its effect on the estate tax, the American Taxpayer Relief Act set the maximum federal gift tax rate at 40%. The Act also includes a $5 million dollar lifetime gift tax exclusion which is adjusted for inflation. Thus, a person still may gift up to $5 million (or more) tax free during his lifetime.
C. Generation Skipping Transfer Tax. The American Taxpayer Relief Act set the maximum federal generation skipping transfer tax rate at 40%. The Act also includes a $5 million dollar lifetime generation skipping transfer tax exclusion which is adjusted for inflation. The generation skipping transfer tax usually applies when a person makes a gift to a grandchild (or to someone 37.5 years younger than the gift-giver). Thus, a person still may gift, either during life or at death, up to $5 million (or more) tax free to his grandchildren (or to anyone 37.5 years younger than he is).
Overall, the American Taxpayer Relief Act essentially preserved the recent status quo. Although the top estate and gift tax rate increased, the increase was not as great as it could have been. Furthermore, the estate and gift tax exclusion remains at a generous $5 million. Most individuals may rest easy knowing they will be able to pass their wealth onto younger generations tax free.
Please read the full article "Hot Topics in Estate Planning-2013" and other corporate law or estate planning articles and newsletters at http://www.pozzuolo.com
Pozzuolo Rodden, P.C, Philadelphia Estate Planning Attorneys, provides specialized cost-effective legal services to privately held business owners and high-net-worth clients in the Philadelphia Metropolitan and South Jersey areas in excess of 35 years.
Business planning and transaction, complex business litigation, commercial real estate and development, construction law and litigation, advanced estate planning and administration, tax and pension law, high profile and intricate family litigation, and employment law and litigation.
Pozzuolo Rodden, P.C.
Counselors at Law
2033 Walnut Street
Philadelphia, PA 19103
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