How You Can Prepare for Potential Estate Tax Changes



September 13, 2012


In order to make you aware of changes in tax laws coming January 1, 2013, we would like to present the last edition in our series discussing potential tax law changes in 2013.   


In thisWEALTHWISE we will tell you how potential changes to estate and gift taxes will affect you.  If no new estate and gift tax laws are enacted before January 1, 2013, the estate, gift and generation-skipping tax rates will revert to 2001 amounts.


Where things stand now


The estate, lifetime gift, and generation-skipping exemption amounts will each go from the current $5.12 million to $1 million.


For example, if someone dies in 2012 with a $5 million estate, none of this is subject to estate tax because it is below the $5.12 million exemption. If this same person dies in 2013, $4 million would be subject to estate tax.


Tax Rates

After the end of 2012, the highest estate and gift tax rates will increase from 35% to 55% for the taxable amounts above the exemption amounts. 


Using the example above, if someone dies in 2013 with $4 million subject to estate tax, the estate tax would be 55%, or $2.2 million in tax due.


Estate Tax “Portability”

Current tax law allows a surviving spouse to claim any unused portion of their deceased spouse’s estate tax exemption.  This is often referred to as “portability” of the estate tax exemption.  This portability will no longer be available after 2012. 


For example, if a spouse dies in 2012 and his estate only claimed $2 million of the $5.12 million exemption, then the surviving spouse could add $3.12 million to her available exemption. 


The next step

The changes noted above assume that no changes are enacted for 2013. However, new estate and gift tax laws could be passed before the end of 2012 or early in 2013.  As with new developments in income tax rates, your PERSONALCFO will be monitoring closely any modifications in estate and gift tax rates.  Additionally, your PERSONALCFO is looking at your personal situation and will be contacting you in the next few months to coordinate strategies with your CPA and estate attorney to determine the best course of action.


If you missed the second article in this series, click here to read about potential income tax rate changes for 2013.