New Tax Law Impact on Estate Planning

The American Taxpayer Relief Act of 2012. the "Fiscal Cliff"   law has important tax issues in Estate Planning:

• The anticipated large increases in federal estate, gift and generation skipping transfer taxes were averted.  The estate and gift tax exemption amount  is $5 million (indexed for inflation)  For 2013, the exemption amount is $5.25 million. 
• The top estate, gift and GST tax rates increase from 35 percent to 40 percent for transfers in 2013 and later. Many States have much smaller exemptions. For example, the exemption amount in New Jersey is $675,000. This means many estates will have NJ Estate Tax while being exempt from US Estate Tax.
•  “Portability” for estate tax exemptions is continued. That allows the estate of the first spouse to die to elect to transfer his or her unused estate tax exemption to a surviving spouse. Portability does not apply to New Jersey Estate Tax

Gift Tax Exclusion. The annual gift tax exclusion amount (which is indexed for inflation) increased to $14,000 per recipient on January 1, 2013.A husband and wife can joint give $28,000 per recipient.

Because there is relative certainty in Estate and Gift Tax law for the first time in more than a decade, now is a good time to review your estate plan. Even if your assets are below the federal exemption amount, planning may be appropriate to maximize your New Jersey estate tax exemption. Also, the high tax exemption allows greater flexibility in dealing with non-tax protections for your estate plan.

Ronald J. Cappuccio, J.D., LL.M.(Tax)

February 6, 2013