Estate Planning and the New Tax Law

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Depending on your financial situation, you may be able to adopt simplified estate planning strategies following passage of the American Taxpayer Relief Act of 2012 (ATRA). ATRA sets generous limits when it comes to transferring assets free of federal gift and estate tax.

Tax Rates and the Unified Credit
Before the new law, the top estate-tax rate was scheduled to rise from 35% in 2012 to 55%, while the exclusion amount would have dropped from $5.12 million to $1 million. ATRA permanently sets the federal estate- and gift-tax rate at 40% and provides a unified credit that exempts $5 million (adjusted for inflation)* in cumulative lifetime gifts and transfers at death from gift and estate taxes. (There’s generally an unlimited deduction for assets passing to your spouse.)

Exclusion Portability
ATRA has made permanent the provision allowing “portability” of any unused exclusion amount of the first spouse to die. To accomplish this, the estate makes an election to allow the surviving spouse to use the decedent’s unused exclusion — in addition to the survivor’s own exclusion — for lifetime gifts and transfers at death.

The Gift-tax Annual Exclusion
ATRA made no changes to another special tax law provision that allows you to give assets to loved ones during your lifetime without gift-tax concerns. The gift-tax annual exclusion allows you to make annual gifts of up to $14,000 each (in 2013) to as many people as you choose free of federal gift tax. (A married couple generally can give $28,000 per recipient.) You can give cash, securities, real estate, or other property to children, grandchildren, other relatives, friends, or anyone else you wish. Your gifts generally will be tax free and won’t count against your unified credit as long as you adhere to the limits.

Unlimited Exclusions
The tax law continues to allow for some additional unlimited exclusions. You won’t owe gift taxes on tuition paid directly to a qualifying educational organization on behalf of someone else or for payments made directly to a medical care provider for another person’s medical care or medical insurance. These exclusions are available in addition to your gift-tax annual exclusion.

GST Exemption
The generation-skipping transfer (GST) tax is a tax on the transfer of assets to grandchildren or other individuals more than a generation younger than you are. The GST tax is equal to the highest federal estate- and gift-tax rate (40% after ATRA) and is paid in addition to any gift or estate tax that may be owed on the transfer. However, a GST-tax exemption allows you to transfer a certain amount (during life or upon death) free of GST tax. Under ATRA, the exemption parallels the basic estate- and gift-tax exclusion amount: $5 million, as indexed for inflation. A married couple generally may transfer twice that amount without GST tax.

Time for a Review
Changes to the tax law provide the perfect backdrop for reviewing your current estate plan with your financial professional. Keep in mind, though, that estate planning isn’t only about taxes. While minimizing your exposure to estate taxes may be one of your objectives, you may also have other goals, such as business succession planning, that require more complex strategies.

If you have questions or would like assistance with your current estate plan, please contact us online or call 941-366-7222.

* The inflation-indexed gift- and estate-tax exclusion amount is $5.25 million for 2013.

Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Trust Company of Florida nor its affiliated Companies 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 and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Trust Company of Florida, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

Posted by Will Weidman at 10/09/2013 07:19:53 PM