To the relief of taxpayers and planners, Congressional action made only small changes to the
- The estate and gift tax exemptions are $5,250,000 in 2013, up from $5,120,000 in 2012. This will adjust for inflation going forward.
- The top tax rate for estates and gifts exceeding the exemption is 40%, up from 35% in 2012, but better than the 55% rate that would have been the law had Congress not acted.
- A surviving spouse is still able to access the unused portion of the estate exemption of the deceased husband or wife.
It's important to note that the exemption applies to both inheritances and lifetime gifts. The cumulative combined "transfer" exemption will be $5,250,000 whether the money is given away before or after you die. In addition, you can give away up to $14,000 annually to as many recipients as you like without tapping into your lifetime transfer tax exemption.
Average folks with estates far under $5 million may wonder how any of this applies to them. But the reality is everyone needs an estate plan. The backbone of your estate plan is a will, an essential legal tool to ensure your final wishes are honored. A will can also indicate who will take care of your children should you pass away, and how the children can access their inheritance. If you want to include your favorite charity in your estate plans, there are strategies available to benefit both family and charity alike.
Also, it is important to remember that states have their own rules. Washington State does not have a gift tax, but the estate tax starts at $2 million.
While it’s tempting to breathe a sigh of relief, don't let the current rules lull you into complacency. Contact us and your attorney for a review of your estate plans today.