An Examination of the

FEDERAL ESTATE TAX

A Look At Where The Estate Tax Stands Today, Why Many People Call It The Death Tax and How It Might Affect You

Barry H. Zimmer Estate Planning Attorney The Zimmer Law Firm 523-721-1513

Barry H. Zimmer Estate Planning Attorney Cincinnati OH The Zimmer Law Firm 523-721-1513

Its often been said that the only sure things in life are death and taxes. And, if youre fortunate enough to have accumulated great financial wealth during your lifetime, taxes may significantly reduce what passes to your heirs.
When you earn income you must pay taxes. Whatever you are left with is yours, and you can do whatever you want with it. However, once you pass away, those same funds become taxable if they exceed a certain amount. Nothing has happened to change things except the incident of your death. This is why many people call the estate tax the "death tax." In this article, wed like to take a look at where the estate tax stands today, and explore the ways it might affect you. THE BACK STORY In 2010, based on a law passed in 2001, the federal estate tax was repealed for the estates of people who died that year. That same law set the tax to return in 2011 with a $1 million exclusion and a 55% maximum rate. However, this scenario never played out because the president signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act at the end of 2010. This measure placed the estate tax exclusion at $5 million in 2011. There was a provision for an inflation adjustment in 2012. The top rate of the tax was set at 35% for both years. The 2012 adjustment raised the exclusion from $5 million to $5.12 million, but that law was temporary, and at the end of 2012 the federal estate tax law was to automatically revert back to the 2011 law unless Congress took action.

Barry H. Zimmer Estate Planning Attorney Cincinnati OH The Zimmer Law Firm 523-721-1513

THE AMERICAN TAXPAYER RELIEF ACT OF 2012 At the end of 2012 the so-called fiscal cliff loomed large. If Congress could not agree on a new federal budget, automatic tax increases and spending cuts were set to kick in. Part of the problem was the expiration of the previously-mentioned Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. As stated above, if this piece of legislation was allowed to expire without anything taking its place, the estate tax exclusion would have been reduced to $1 million, and the maximum rate would have been raised to 55% in 2013, which is precisely where things stood at the end of 2010. Fortunately, Congress passed the American Taxpayer Relief Act of 2012, which helped America avoid tax increases and federal spending cuts. ATRA set the estate tax exclusion at $5.25 million after another inflation adjustment, with a 40% maximum rate. The parameters laid out by ATRA are permanent, in the sense that they have no expiration date. However, its important to understand that although the law will never expire, Congress may still pass legislation that replaces it. Indeed, the Obama administrations Green Book budget proposal released in April 2013 called for a reduction in the estate tax exemption to $3.5 million, with no indexing for inflation, effective 2015. OTHER FEDERAL ASSET TRANSFER TAXES The estate tax is not the only tax on asset transfers. The federal gift tax was also created to dissuade people from simply giving away assets to those who would otherwise inherit them.

After the passing of the piece of legislation that has been named the American Taxpayer Relief Act of 2012 on January 2, 2013, the estate tax rules from 2012 were for the most part kept intact. During 2011 and 2012 the maximum rate of the federal estate tax, the gift tax, and the generation-skipping transfer tax was 35%. Under ATRA 2012, the base $5 million exclusion was kept in place with ongoing adjustments for inflation. This year the exclusion is $5.25 million. One thing that did change is the top rate of federal asset transfer taxes. Going forward we have a 40% maximum rate rather than a 35% top rate.

Barry H. Zimmer Estate Planning Attorney Cincinnati OH The Zimmer Law Firm 523-721-1513

Both your estate and the taxable gifts that you give throughout your life are subject to at $5.25 million exclusion. The Free Estate Planning Report maximum rate of the gift tax is also 40%. In addition, there is a generation-skipping transfer tax in the United States. It is imposed on asset transfers to family members who are two generations younger than you. The tax also applies to transfers to individuals who are not family members who are at least 37.5 years younger than you. The generation-skipping tax also carries the $5.25 million exclusion and 45% top rate. ANNUAL GIFT TAX EXCLUSION
Estate Planning: You'll Be Proud of Your Efforts Those Who Plan Their Estates Are Always Proud That They Did

In addition to the $5.25 million unified exclusion from gift and estate taxation, there is also a Click to Download Your Free $14,000 per person, per year gift tax exclusion. Estate Planning Report Today Put simply, you can give as much as $14,000 to any number of people in a given year before the gift tax kicks in. This figure is indexed for inflation from time to time. As a result, if you are married, you and your spouse could give up to $28,000 in gifts to unlimited recipients annually. Let's say you had a married son. You and your spouse could gift $28,000 to both your son and your daughter-in-law in a given year, enabling a $56,000 taxfree transfer. Utilizing this exclusion over a number of years could be an effective way to reduce the taxable value of your estate. If you make gifts in excess of the annual exclusion, then the unsheltered amount of the gift reduces your lifetime exemption of $5.25 million per person. Once that exemption is burned, then you must actually pay a tax on lifetime gifts.

Barry H. Zimmer Estate Planning Attorney Cincinnati OH The Zimmer Law Firm 523-721-1513

About the Author

CONCLUSION People who are in possession of assets exceeding $5.25 million in value definitely must take steps to gain estate tax efficiency. The 35% maximum rate that is in place right now can significantly erode the value of the inheritances that your family members will receive. Even if you are not currently in taxable territory tax laws are subject to change. In fact, the 2014 fiscal year budget that has been proposed by the president includes a future reduction in the exclusion to $3.5 million. The prudent course of action is to discuss your situation relative to federal asset transfer taxes with a licensed estate planning attorney. REFERENCES IRS http://www.irs.gov/Businesses/Small-Businesses-&Self-Employed/Estate-and-Gift-Taxes Forbes http://www.forbes.com/sites/deborahljacobs/2013/01 /02/after-the-fiscal-cliff-deal-estate-and-gift-taxexplained/

Barry Zimmer engages in a Wealth Care Practice. Specific services include include basic and advanced trust planning; trust estate settlement; probate estates; trust beneficiary advocacy and representation; asset protection; business organization; business succession planning; and pre-marital planning. His goal is to make creating a Wealth Care and Estate Plan the first step in a relationship that is satisfying and unlike a client's experience with any other lawyer.

The Zimmer Law Firm 9825 Kenwood Road, Suite 201 Cincinnati, OH 45242 Phone: (513) 721-1513 info@zimmerlawfirm.com

Barry H. Zimmer Estate Planning Attorney Cincinnati OH The Zimmer Law Firm 523-721-1513