Many people were relieved that Congress and President Obama were able to reach a last minute deal to avoid the so-called “Fiscal Cliff.” However, there was also some trepidation about what the deal would include. As it turns out the deal, passed into law as the American Taxpayer Relief Act, contains some things that people are pleased with and others that most people are not. This is certainly the case for the portions of the deal that involve the estate and gift taxes.
To get the bad news out of the way, the tax rate on portions of estates that are over the estate tax exemption limit and on gifts over the lifetime gift tax exemption limit has increased to 40% from the previous rate of 35%. That is bad news for many families and makes planning around the estate tax even more important. However, the good news is that the exemption limits themselves remain untouched. It was feared that they would be lowered considerably. They were not and they will actually go up to $5.25 million in 2013 to account for inflation. This will spare a lot of families who feared that they would fall under any lowered exemption limits.
Another piece of good news in the deal is that spousal portability remains a key feature of the estate tax. If certain conditions are met, a surviving spouse can make use of a deceased spouse’s estate tax exemption, or at least the portion the deceased spouse’s estate did not use. It would be a good idea for married couples to talk to an attorney about taking advantage of this.
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