When estate taxes hit, they can hit hard. So taxpayers can take a lot of comfort in the fact that the American Taxpayer Relief Act (ATRA) dated January 3, 2013 has set the federal estate tax exemption at $5.25 million for 2013, indexed for inflation.
ATRA ends years of speculation about whether lawmakers would allow the estate tax exemption to fall to $1 million in 2013, as prior law had called for. While it is always possible the law could change again, at least for now the $5.25 million (inflation-indexed) exemption is “temporarily” permanent.
The lifetime gift tax exclusion of $5.25 million may be used for planning purposes during one’s lifetime. It represents the cumulative amount that can be excluded from gift taxes.
A married couple who both make full use of their combined estate tax and gift tax exemptions could choose to transfer $10.5 million to their children (or other heirs) tax free. A husband may elect to leave everything to his wife (surviving spouse). In this situation, the wife’s estate tax exemption went unused and the transfer did not take full advantage of their exemptions. (There is generally no estate-tax liability on transfers to a surviving spouse due to an unlimited marital deduction.)
ATRA held good news for married couples. An estate’s executor or personal representative may elect to make the decedent’s unused estate tax exemption available for use by the decedent’s surviving spouse (in addition to the surviving spouse’s own exemption). This portability rule was set to expire at the end of 2012 but is now “permanent”.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Canandaigua National Bank & Trust does not provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.
This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.