Fiscal Cliff Averted- What Does This Mean for Estate Taxes? (FAQ)
We recently dodged the “Fiscal Cliff.” What does this mean for Estate Taxes? Below are some FAQs about the topic:
Q: Will there be any change to estate taxes?
A: The amount that is exempted from estate taxes will remain the same as it has been for the past two years, and the maximum tax rate will rise by 5 %.
Q: How will inflation affect the estate tax exemption?
A: The American Taxpayer Relief Act of 2012 that was signed into law by Obama set the estate tax exemption at 5.12 million for an individual and $10.24 million for a couple. Read the Washington Post article.
Q: Under the new law, how much can you transfer tax-free during life or at death?
A: Under the 2012 tax law, we can each transfer up to $5.12 million tax-free during life or at death. The new 2013 tax law does not change how much you can pass tax-free.
Q: Do spouses have to pay the tax when they inherit from each other?
A: The new law doesn’t change this either. There is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies.
Q: How does this relate to lifetime gifts?
A: The lifetime gift tax exclusion and the estate tax exclusion are expressed as a total amount – currently $5.12 million per person. If you exceed the limit, you or your heirs will owe tax of up to 40%. The IRS expects you to keep a running tally and report these giftsso it will know how much has already been used up when you die.
Q: Are there lifetime gifts that don’t count?
A: We can each give another person $14,000 per year without it counting against the lifetime exemption. Spouses can combine this annual exclusion to double the size of the gift. This amount does NOT count against the $5.12 million lifetime exclusion discussed above. However, always beware of making lifetime gifts if you are over the age of 65 — read the Perils of Gifting webpage on the Elder Law Firm of Evan H. Farr, P.C. website for more details.
Q: Should you update your documents?
A: Nearly 2.5 million Americans die each year, and many haven’t signed the basic documents needed to protect their loved ones, so everyone should have a plan in place. You can make an appointment for a free consultation with The Law Firm of Evan H. Farr, P.C. at 703-691-1888. If you have already taken the important step of planning with the Elder Law Firm of Evan H. Farr, P.C., with all of the changes that have taken place within the past five years, you should revisit your plan this year.