So, it appears that we did not go off the first “Fiscal Cliff” and some momentary “permanence” has been given to the Estate Tax Law. In the just passed “American Taxpayer Relief of 2012,”  Congress kept in place the 2010 estate tax law with its Five Million Dollar ($5,000,000.00) personal exemption, adjusted annually for inflation.  The only thing the lawmakers actually changed is the gift and estate tax rate, which has gone up to a top rate of forty percent (40%) from a previous maximum of thirty-five percent (35%).  The exemption amount in 2012 was 5.12 million dollars, per person.  The 2013 exemption amount is reported to be 5.22 million dollars per person.  This amount of money either can be given away during lifetime or after death; it also can be given or devised to grandchildren without occurring any additional generation skipping tax.

Congress also increased the gift tax annual exclusion to Fourteen Thousand Dollars ($14,000.00).  Remember, you can give away $14,000.00, per year, per person, to any individual(s) you choose, without it counting against your 5.22 million dollar lifetime exemption.

Can we now exhale?  Will we ever have to worry again about the personal exemption reverting back down to $1,000,000, per person, as was only hours away from happening on January 1?  I must give you the typical lawyer answer, “it depends”, and here’s why:   the estate tax has been around almost 100 years.  Throughout that time, an average of about 2% of all adult deaths resulted in taxable estate tax returns being filed.  Under the current law, it is estimated that only 0.2% of all adult deaths will result in taxable estate tax returns.  In order for the estate tax to continue to generate taxable estates at its historic 2% average, the personal exemption would have to be reduced to about 1 million dollars ($1,000,000.00).  Yes, we have the lowest estate tax rates ever and yes, Congress seems to have made those tax rates permanent.  However, in looking at the historical perspective, coupled with upcoming “fiscal cliff” (automatic spending cut) deadlines and a growing federal deficit, you have to wonder how long these historically low rates can be sustained. 

The best way to stay abreast of continuing congressional volatility and changes in the estate tax laws is to have an ongoing relationship with an estate planning attorney, such as we provide with our Annual Maintenance and Updating Program.

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