Category Archives: Estate Tax Personal Exemption Allowance

When calculating estate taxes, the tax free individual allowance.

President Obama makes “permanent” estate tax temporary again.

President Obama proposed 2014 budget: Changing the Estate Tax and Gift Tax Rates AGAIN!!!

From January 1, 2001 through December 31, 2012, Congress seemed intent on making planning for death more complicated than it already is by creating a series of “temporary” estate tax laws. These temporary tax rates and estate tax and gift tax exclusion amounts created turmoil for software companies, lawyers, accountants and ordinary people.

As part of the 2012 “Fiscal Cliff” compromise, President Obama signed legislation that appeared to make permanent the 2012 estate tax exclusion amount of $5 million for estate and gift taxes and a top estate tax rate of 40 percent. The exclusion amounts would be indexed for inflation. The statements from Congress and the President made it seem we FINALLY had permanent rules regarding federal estate and gift taxes. Software companies could stop revising code. Families could make permanent plans for death.

So much for compromise. The Obama “Green Book” Budget for 2014 puts us back in the guessing game about estate and gift tax rules. Page 138 of the budget has these words: “Beginning 2018, the proposal would make permanent the estate, GST and gift tax parameters as they applied during 2009. The top tax rate would be 45 percent and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes. There would be no indexing for inflation.”

You can find out more here:

http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf

2013 Federal Estate Tax

American Taxpayers Relief Act.

FINALLY! The first temporary rules were passed by Congress in 2001. Twelve years later and two major tax changes in between, it appears we FINALLY have permanent estate tax rules. Software companies, estate lawyers and financial planners should all be breathing easier after Congress passed the American Taxpayers Relief Act.

Here’s a brief summary of the federal estate tax laws included in the Act. The only change from the current federal estate tax rules that went into effect in 2011 is an increase in the tax rate.

1. The federal estate tax exemption allowance stays at $5 million.

2. Portability stays. Portability gives married couples the ability to exempt $10 million of assets from any federal estate taxes by filing a Deceased Spouse Unused Exemption Allowance form when the first spouse dies.

3. The estate tax rate on estates exceeding the $5 million estate tax exemption allowance will be 40%, a change from the current 35% tax rate.

The Federal Estate Tax

Pay attention to the House of Representatives this week! It appears our government is getting ready to decide how to change the current federal estate tax laws over the next couple of weeks.

Will the House of Representatives recommend the 2009 $3.5 million federal estate tax exemption allowance become the permanent allowance starting in the year 2010? Or, will something different be recommended?

If the existing $3.5 million exemption becomes a permanent estate tax allowance, a married couple could use an A/B trust and pass $7.5 million to their heirs free of federal estate tax. Very few estates would be subject to any federal estate tax.

It may become more important to watch what the estate tax laws are in a particular state..and figure out what state not to die in. As the amount of the federal estate exemption allowance has grown from $1 million to $3.5 million over the last several years, some states have not have changed their inheritance or state estate tax laws. For some, the choice of residence may impact the amount of estate taxes due when someone dies.

A recent New York Times article listed 12 states that have some type of estate tax/inheritance tax. http://online.wsj.com/article/SB125694593227919879.html

I know someone who experienced the costly impact of New Jersey state inheritance tax laws. I’ve heard her say time and time again…”DON’T HAVE YOU PARENTS DIE IN NEW JERSEY!!!”

Stay tuned. We’ll be watching what is happening in Congress.. and keep you up to date on the latest developments.