2012 Tax Relief Act Helps Avoid Estate Planning Fiscal Cliff

/ / Law Blog

As 2012 comes to a close and a new year quickly begins, Congress, the Senate, and President Obama are all eagerly making efforts to avoid the fiscal cliff that has been threatening our nation’s economy for months now. To do so, The American Taxpayer Relief Act, informally referred to as the 2012 Tax Relief Act, was officially signed into effect on January 2, 2013, thus effectively avoiding the scheduled increases to estate and gift taxes. Additionally, the bill promises to provide more transfer tax certainty in the coming year.

The 2012 Tax Relief Act officially extends the temporary changes that were first enacted in 2010 and which were scheduled to expire at the first of this year. Had this extension not been made, an estate planning version of the economy’s “fiscal cliff” would inevitably have gone into effect. Assuming the changes had been allowed to expire, Americans would have been subjected to a reduction in tax exemptions for estate taxes, gift taxes, and generation-skipping taxes, relegating these taxes to amounts worth no more than $1,000,000 while simultaneously increasing the estate tax rate to 55%.

Thanks to the 2012 Tax Relief Act, however, the changes that were first made in 2010 will now be put into effect permanently; with one exception. As of January 2nd, the law now includes a modification to its pre-existing stipulations, all of which have dictated tax law up to this point. Specifically, the $5 million exemption amount will be retained and indexed for inflation for any year after 2011. The exemption amount for 2012 was $5.12 million and projections suggest that this year’s exemption could be worth up to $5.25 million. With the 2012 Tax Relief Act fully in effect, we can expect the maximum tax rates for estate, gift, and generation-skipping taxes to increase by 5% as well, taking it from 35% to 40%. The transferability of the estate tax emption for married couples will also be retained.

Anytime that a new law or modification is put into effect, persons must consider how the changes could affect them personally. In this case, the modifications that were made to the 2010 tax relief implementations could potentially impact the same people who were initially affected in 2010; persons who experienced tax exemptions in 2011 and 2012 should also look into the changes that will be enacted moving forward in 2013. At Crary Buchanan, a Stuart estate planning lawyer from our firm will happily meet with you to discuss the terms and conditions of the new American Taxpayer Relief Act. Contact our office today to learn more about the recent changes to our nation’s tax law and how you could be affected. We are here to help!