Federal Estate Tax

The American Taxpayer Relief Act which was signed into law on January 2, 2013 provided “permanent” (unless continued political debate over the federal budget result in further changes) rules that create a  more predictable environment for planning and decision making.  As pertains to the Federal Estate Tax the following is now in effect:

1.      Who has to pay federal estate tax?  If your estate is in excess of $5 million dollars (excess of $10 million for couples), the federal estate top tax rate would be 40%.  Your estate will not be subject to federal estate tax if your estate falls under these limits.

2.      Do spouses have to pay the tax when they inherit from each other?  The unlimited spousal deduction from estate tax still applies under the new law.  Though there will not be a tax upon the death of the first spouse, the tax would apply at the second spouse’s death if the estate exceeds the limits noted in the first question. 

3.      What is the status on lifetime gifts?  The federal estate gift tax exemption is the same as the federal estate tax, $5 million dollars, indexed for inflation. The 2013 exemption is $5,250,000.  Gifts in excess of the limit will have a top tax rate of  40%.  In 2013 you can give up to $14,000 to as many individuals as you like and this does not require filing of a gift tax return.