March 13, 2013 /24-7PressRelease/
-- Fiscal-cliff law settles federal estate tax for now
Article provided by The Haley Law Group, LLC
Visit us at http://www.haleylawgroup.com
Estate and tax planning have been complicated in the past decade or so by the fluctuating and uncertain federal estate tax. Thanks to last-minute action by Congress and President Obama, the top federal estate tax rate is set at 40 percent going forward on estates over $5 million. Adjusted for inflation, the first $5.25 million in estate assets will be exempt from federal estate tax for those dying in 2013.
An estate tax is one that is imposed on the transfer of money and property to heirs and beneficiaries when someone dies and that comes out of the estate. Also called death taxes by those who do not favor them, estate taxes mainly affect the affluent who leave very large estates to their loved ones and other beneficiaries.
Largely because of the chasm between the tax philosophies of Republicans and Democrats in power, recent federal estate tax legislation has been piecemeal and short term, making it difficult for people to feel confident in choosing estate planning methods that would accomplish their goals over the long run.
Going over the "fiscal cliff" would have automatically reduced the exemption to $1 million and raised the estate tax rate to 55 percent in 2013. That would have meant a lot more money for federal coffers and subjected much more inherited wealth to reduction by tax. Instead, in January 2013, Congress enacted the American Taxpayer Relief Act, known as ATRA 2012.
Legal counsel invaluable
People should talk to experienced attorneys for help reviewing their existing estate plans and advice about whether and how to change them in light of the new federal estate tax changes. A knowledgeable tax lawyer will understand how to plan for complicated estates by using vehicles like lifetime gifts and trusts to minimize future estate taxes and maximize wealth for beneficiaries.
Watch out for state taxes
But the federal estate tax is only part of the puzzle in many states that may also impose state estate taxes or inheritance taxes (that tax people inheriting money or property, rather than estates). For example:
-New York: estate tax exemption of $1 million with top estate tax rate of 16 percent and no inheritance tax
-New Jersey: estate tax exemption of $675,000 with top estate tax rate of 16 percent; and top inheritance tax rate of 16 percent on inheritances of any size
-Pennsylvania: top inheritance tax rate of 15 percent on inheritances of any size and no estate tax
These state taxes reach much smaller estates and inheritances than the federal estate tax, and must be taken into account in estate planning.
This article only scratches the surface of estate taxes. Many other complex related topics that affect estate planning include gift taxes, generation-skipping property transfer tax exemptions, portability, and the complicated interplay of federal and state tax credits and deductions. Making an appointment with a skilled estate attorney is a must for any taxpayer.---
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