While we were getting dangerously close to flying over the fiscal cliff, those in the estate planning sector were watching closely.
The estate and gift tax, which taxes what you own and pass on to others either during your lifetime as a gift, or at death as a bequest, was in flux. At the end of 2012, the tax which gave every individual a $5 Million exempt amount prior to the imposition of tax, was in danger of reverting to $1 Million per person. Additionally, the tax rate would have gone up to 55%.
Many may think that $1 Million is a sufficiently generous amount. However, it would have had adverse affects upon many family owned businesses and farms. These individuals don’t live like the wealthy, however, the value of their businesses or farms, which include all of their equipment, would have placed their estates over $1 Million. In such an instance, the family would then, upon the death of the owner, have to sell the business or farm because they did not have enough money to pay the estate taxes due.
In the end, lawmakers preserved the $5 Million exempt amount per person but did change the tax rate from a maximum of 35% to 40% on the amounts over the exempt amount.
So, who’s estate is now taxable? For taxpayers dying in 2013, the estate tax exclusion amount as adjusted for inflation is now $5.25 Million per person. For all amounts over that, the estate tax will be levied at a maximum rate of 40%.