Many clients have asked me how the fiscal cliff deal affected the 2013 federal estate tax exclusion amount. At the end of 2012 attorneys were scrambling to assist their clients to transfer assets in anticipation of a drop in the federal estate tax exclusion from $5,000,000 to $1,000,000. Most people in the estate planning business (including me) were predicting that Congress would negotiate a deal that would put the 2013 federal estate tax exclusion amount somewhere in between $5,000,000 and $1,000,000.
Surprisingly, Congress left the federal estate tax exclusion amount at $5,000,000 permanently. The amount is indexed for inflation each year which means that the basic 2013 federal estate tax exclusion amount for people who die this year is $5,250,000.
The federal gift and generation-skipping transfer tax exemption is the same as the estate tax exclusion amount. The top federal estate tax rate is now 40%, up from 35% in 2012, for the largest estates. Transfers from one spouse to the other are still tax-free under the unlimited marital deduction.
Another result of the new law is that portability became permanent. Prior to portability, a husband and wife had to make use of a trust or multiple trusts in order to take advantage of both spouses’ estate-tax exemptions. Portability effectively makes the federal estate tax exclusion amount “portable” between a husband and wife. When one spouse dies, the surviving spouse typically can get the deceased spouse’s unused exemption amount without having to set up trusts or other tax-saving maneuvers.
If you need an estate attorney who is familiar with the 2013 Federal Estate Tax Exclusion contact Paul A. Romano.