ESTATE TAX ALERT - January 7, 2013

“American Taxpayer Relief Act.”
By: Tina L. Annis and Jeffrey J. Zellers

On New Year’s Day 2013, Congress passed the “American Taxpayer Relief Act.” As part of the aversion of the “fiscal cliff,” this new law contains the first “permanent” Federal estate and gift tax provisions in 12 years. Here are the highlights of the new law, as it pertains to the Federal estate tax:

The Federal estate and gift tax exemption will remain at $5 million, indexed for inflation since 2011, making it $5.25 million for 2013 (this allows a married couple, with proper planning, to transfer $10.5 million free of Federal estate tax).

The maximum Federal estate and gift tax rate will increase to 40% (which is up from the 35% rate of 2010-2012, but less than the otherwise scheduled 55% rate).

The law allowing for “portability” of the Federal estate tax exemption between spouses has been made permanent. Under this law, if a husband or wife dies and does not use their entire Federal estate tax exemption amount, then the “Deceased Spouse’s Unused Exemption Amount” (often referred to as the “DSUEA”), is available for the survivor’s estate. The DSUEA can also be used by the surviving spouse for lifetime gifts, having the potential for substantial tax saving.

The annual gift tax exclusion amount for 2013 is $14,000 (which is an increase from $13,000 last year). This allows an individual to give away $14,000 per person per year ($28,000 for married couples), without making use of any of the $5.25 million total exemption.

As a result of the new Federal legislation, New Hampshire continues to NOT have any estate or inheritance tax. However, many other States do have their own tax (including Massachusetts, Maine, Connecticut and Vermont), and individuals who own real estate in other States should confirm the exemptions and rates which apply in those particular States.

If you have questions about the new law, or how it might fit into your own estate plan,
please do not hesitate to contact our office.