Without question, the issue that has dominated America’s economic debate in the New Year has been the wide-reaching tax compromise reached by Congress and the White House in order to avert the ‘fiscal cliff’ of simultaneous tax hikes and spending cuts. The deal, which was dubbed the American Taxpayer Relief Act of 2012, made important changes to almost every area of federal tax police-with estate tax being no exception.
With sizeable local and state taxes already a reality in every Los Angeles resident’s life, any national shift in the estate tax is of particular interest for those drawing up an estate plan, will, or trust for their family’s posterity.
The Taxpayer Relief Act, formally H.R.8, specifically sets the estate tax’s exemption rate at $5.12 million per individual and $10.24 million per married couple. Both numbers are indexed by inflation and can be expected to rise slightly but steadily each year. Beyond the exempted amount, 40 percent of assets passed on through an estate will be taxed by the federal government.
Both the exemption level and the estate tax rate are compromises reached between President Obama and Congress. The White House had sought an exemption of $3.5 million and a tax rate of 45 percent, while Republicans in Congress had been pushing for a far lower estate tax rate and higher exemption amount.
The Taxpayer Relief Act’s estate tax stipulations may represent more middling compromise than drastic upheaval, but the specifics of the deal are critical for both individuals and couples. A single percentage point can represent thousands of dollars that are either gained or lost by one’s children and grandchildren.
Working closely with an attorney specializing in estate planning can help one keep aware of how Washington’s decisions affect individual estate plans as the ideal arrangement for each family is drafted and put in place.
Source: Forbes, “More Estate Tax Changes Could Follow Fiscal Cliff Deal,” Hani Sarji, Jan. 06, 2013
- Our California practice can help to clarify and expedite the drafting of a will, creation of a trust, or planning of long-term care. For more information, visit our estate planning law page.