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Elder Law and Estate Planning Blog - Lancaster, PA

Thursday, January 3, 2013

Fiscal Cliff Deal Includes Only Small Change to Estate Tax

As a part of Congress's tax compromise to avoid falling down the fiscal cliff, the exemption amount for estate taxes will remain the same as it has been for the past two years.  The American Taxpayer Relief Act, passed in the House by a vote of 257 to 167, permanently sets the estate tax exemption at $5 million for an individual (adjusted to $5.12 million due to inflation) and $10 million for a couple (adjusted to $10.24 million).  With new inflation amounts, the exemption is expected to rise to about $5.2 million.

The gift tax and generation-skipping transfer tax exemptions will remain the same as last year as well.  They will be adjusted for inflation as the estate tax exemption was.

Congress, however, did make one change to the prior rules, by increasing the maximum tax rate by 5 percentage points.  This raises it to 40 percent.  Tax rates of 37, 39 and 40 percent will apply, depending on the value of the estate.

This bill and it's provisions would take effect January 1, 2013.  However, until President Obama signs it, the estate tax has technically reverted to its 2011 level of 55 percent and the estate tax exemption level has dropped to $1 million.  Still, President Obama has promised to sign the bill, and should be doing so quickly.

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