Since 2010, under Federal estate and gift tax law, every individual has an exemption of $5.12 million assuming he or she has not previously made taxable gifts. Given proper estate planning, this exemption means a couple could shield slightly more than $10 million from tax at death. Barring a change in the tax law prior to January 1, 2013, or a retroactive change in 2013, the exemption is reduced to $1 million on January 1, 2013. Thus, a couple with a net worth in excess of $1 million could then be subject to the estate tax. Keep in mind that for estate tax purposes, net worth includes life insurance and retirement plan benefits. That's why it is important to include life insurance and retirement plan benefits when calculating your net worth.
While it is possible that Congress will change the exemption amount, many clients have, or are now considering, making gifts or transfers either outright or in trust to their beneficiaries in order to maximize their utilization of the higher exemption before year end. If Congress changes the estate tax exemption amount, it is entirely possible the gift exemption will remain at $1 million (which is where it has been in recent history despite changes in the estate tax exemption). Therefore, this would be the last year in which an additional $4 million in gifts could be made. There are a number of issues to be considered with such a transfer.
If you need to take action based on the information in this alert, we recommend that you contact us as soon as possible to begin the process. As we approach year end it will become increasingly difficult to have meaningful discussions, prepare documents and accomplish a transfer of assets before the “ball falls on New Years Eve.”
On another note, certain inflationary adjustments have been set for 2013. The most important adjustment is an increase to $14,000 of the annual exclusion for gift tax purposes. This amount, which had been $13,000, is the amount that an individual can give to anyone without the necessity of filing a gift tax return. This amount, therefore, is non-reportable by the donor and also is not reportable as income by the donee.
For more information, please contact:
Jeffrey P. Consolo 216.348.5805
or any of the estate planning attorneys at McDonald Hopkins by clicking on the Estate Planning link below.
Our estate planning and probate services for individuals and families are focused on helping clients meet their estate planning objectives through income, estate and gift tax minimization. Our services include preparation of wills, living trusts, financial powers of attorney, charitable trusts, and related documents. We take a comprehensive approach to the planning process to ensure that the goals of the family are carried out and that the estate is appropriately managed.