Estate Planning Opportunities Over the “Fiscal Cliff”

In 27 days, many key tax provisions are set to change - none more dramatically than the federal estate and gift tax. Don't miss the opportunity to determine how these changes will affect your estate.


With the seemingly endless presidential campaign and election cycle finally complete, the clock is ticking for lawmakers to solve the “fiscal cliff,” a combination of tax increases and spending cuts scheduled to take effect on January 1, 2013.  If Congress is unable to reach agreement on certain key tax provisions before year end, a number of federal tax breaks will expire.  While some of these changes may adversely affect your tax bill, others provide opportunities that shouldn’t be missed.  One such opportunity involves the Federal gift and estate tax.  Never before in the history of the United States tax system has such a significant opportunity existed to transfer wealth free of tax.

Under current law, the federal “unified credit” for gift and estate tax is $5.12 million for 2012.  This means that, as of this year, individuals have the opportunity to give away a total of up to $5.12 million both during life and after death, free of federal estate or gift tax.  Unless Congress takes action to prevent it, however, the current unified credit will expire at the end of this year.  As a result, on January 1, 2013, the unified credit will drop from $5.12 million to $1 million.  In addition, the federal estate tax rate will jump from 35% to 55%.

For many individuals, these changes to the unified credit and federal estate tax may not seem significant.  However, it is important to note that the size of your estate may be much larger than you realize.  For example, even though they typically do not become available until after your death, the proceeds of your life insurance policies will be included in your taxable estate at death.  Between life insurance policies, retirement accounts, and other assets, it is easier than you might think to exceed this $1 million threshold.  Once an individual has exceeded the $1 million mark, any additional assets above that amount will be taxed at a rate of 55%, beginning in 2013.

If your assets currently exceed the $1 million mark – or insurance proceeds or other assets will push you over that amount after your death – you should seriously consider transferring assets out of your estate before the expiration of the $5.12 million unified credit at year-end, even if to a much smaller degree.  Doing so can provide unprecedented tax savings for future generations.  For individuals concerned about giving up control of business interests, real estate, or other assets, there are legal strategies available to transfer the value of assets out of their taxable estates, while still maintaining control and management of the assets.

While no one can predict whether Congress will act to change the estate and gift tax laws set to take effect on January 1, 2013, one thing is certain:  you should not allow this year to expire without carefully considering how this change in the law will affect your estate.  If you have any questions about how these laws may affect you before year-end, contact an attorney as soon as possible.


Have a legal question you'd like to see answered in a future article? Post it in the Comments section below, or email it to me at hgwalser@lavellelaw.com 


Disclaimer: This article provides legal information of a general nature and is not intended as legal advice, nor does it create an attorney-client relationship with any person or group of persons. Should you wish to obtain legal advice concerning your particular situation, contact an attorney. 

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.


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