2013 Federal and Gift Tax Overview

7/27/2019 2013 Federal and Gift Tax Overview

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2013 FEDERAL

ESTATE AND GIFT T AX

OVERVIEW

PAMELA H. POTTER

KENTUCKY ESTATE PLANNING ATTORNEY

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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.

SETTING THE STAGE

Think back to the end of 2010. During that year the estate tax was repealed

entirely due to provisions contained within the Bush era tax cuts. In 2009 the

estate tax exclusion was $3.5 million, and the maximum rate was 45%.

The Bush tax cuts were scheduled to expire at the end of 2010. If this would have

taken place without any new legislation passing the exclusion would have been$1 million in 2011, and the maximum rate would have been 55%.

In December of 2010 a legislative measure passed through both houses of

Congress, and it was signed into law by the president. This piece of legislation

has come to be known as the Tax Relief, Unemployment Insurance




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 millionduring 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 déjà 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.

2013 ESTATE TAX PARAMETERS

There were a lot of possibilities discussed as the powers that be were trying to

reach a compromise regarding the estate tax parameters. The president had

suggested a $3.5 million exclusion at some point, and many people were




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.

FEDERAL GIFT TAX

We have a gift tax as well as an estate tax in the United States, and the two are




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 datein light of possible changes to the tax laws.




REFERENCES

New York Timeshttp://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-of-uncertainty-over-gift-and-estate-taxes.html?pagewanted=all&_r=0

Forbeshttp://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-estate-and-gift-tax-explained/

http://www.forbes.com/sites/deborahljacobs/2013/01/17/the-deadline-every-married-person-and-financial-advisor-needs-to-know-about/

IRShttp://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-

Gift-Taxes

http://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-of-uncertainty-over-gift-and-estate-taxes.html?pagewanted=all&_r=0



http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-estate-and-gift-tax-explained/






http://www.irs.gov/Busin

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-Gift-Taxes














About the Author

Pamela H. Potter

Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms.

Potter concentrates her practice in the area of estate planning, estate

administration, and elder law. Mrs. Potter's goal is to help her clients plansecure financial futures for themselves and their families. To achieve that goal,

her firm offers a wide range of estate planning services, including wills, trusts,

and powers of attorney in addition to probate, estate administration, elder

law, and Medicaid Planning services.

Experience

Ms. Potter spent three years in the public section and 15 years practicing in general practice law firms

before founding her own firm in 2000. She is a member of the American Academy of Estate Planning

Attorneys, the National Academy of Elder Law Attorneys, the Huntington Estate Planning Council, the

Real Property, Probate and Trust section of the American Bar Association, the Probate and Trust Law

Section of the Kentucky Bar Association, and the Kentucky Bar Association Elder Law Committee.

The Potter Law Firm www.potterestateplanning.com

ASHLAND1620 Carter Avenue

Ashland, KY 41105-2591Phone: (606) 324-5516Fax: (606) 324-4766

NORTHERN KENTUCKY 7310 Turfway RoadSuite 550Florence, KY 41042Phone: (859) 372-6656

CHARLOTTE

15720 John J. Delaney Dr.,Suite 300Charlotte, NC 28277Phone: (704) 944-3245




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2013 Federal and Gift Tax Overview