Transfer Tax Fiscal Cliff Averted
The much-discussed fiscal cliff regarding transfer taxes was averted when the American Taxpayer Relief Act of 2012 (“ATRA”) was enacted on January 2, 2013. While the details of the Act are still being analyzed, of note, ATRA provides that the exemption amount from the federal estate tax (regarding transfers at death in 2013 and thereafter) is $5 million (indexed for inflation). Similarly, for gifts made after 2012, the exemption amount from the federal gift tax is $5 million (indexed for inflation). In addition, the exemption amount from the federal generation-skipping transfer tax (which generally applies for transfers made during lifetime or at death to someone two or more generations below the transferor) is also $5 million (indexed for inflation). Such exemptions, as indexed, will be $5.25 million for 2013. ATRA also increased the top tax rate regarding all of these taxes from 35% to 40%.
Further, for deaths in 2013 and thereafter, ATRA extends the ability of a surviving spouse to elect to transfer any of their deceased spouse’s unused estate tax exemption amount to the surviving spouse (this is called “portability” of the unused exemption). This allows surviving spouses to apply this “extra”…
Caring for Your Estate Plan
You have invested time and money in your estate planning documents, but ongoing attention is needed to ensure that it will carry out its objectives.
One of the goals of estate planning is to avoid a court-supervised probate, the primary method being the use of a revocable living trust. Another common way to avoid probate is with the use of beneficiary designations, which have historically controlled the distribution of life insurance and retirement benefits. However, estate planning does not stop once the documents are signed. Assets change, banks change, new accounts are opened, and often a new job means new retirement benefits. Assets that you acquire in the future do not automatically become part of the trust, and sometimes trust assets are transferred from the trust back to you, for example, if you refinance a home.
Likewise, a job change might result in both a new plan and a rollover from a former company 401(k) plan to an IRA. Each time this happens, the old beneficiary designation may no longer be valid and a new one must be completed and submitted. Be vigilant about funding your trust and maintaining current beneficiary designations. Although…