Edge of the Cliff: Changes to the 2013 Federal Estate Tax

Edge of the Cliff: Changes to the 2013 Federal Estate Tax

February 12, 2013 - by

Good news!  We didn’t go off the cliff on January 1st.  Even better news, the American Taxpayer Relief Act of 2012 finally provided some certainty to the federal estate tax by making permanent changes.  Well, “permanent” meaning that, for now at least, these provisions will not lapse, sunset, expire, or otherwise disappear after an arbitrary period of time that Congress decides.

The Exemption Amount

The federal estate tax exemption amount is now fixed at $5 million per person, adjusted annually for inflation.  The 2013 exemption amount is $5.25 million per person.

Portability

Married couples are the biggest winners, because federal estate tax portability is permanent.  This means that any unused exemption amount from the first spouse to die transfers to the surviving spouse, allowing married couples to effectively transfer $10 million and change free of federal estate taxes.

Tax Rate

One spot of bad news: the effective federal estate tax rate goes up from 35% to 40%.

Annual Exemption

But we’ll end on a high note: aside from the American Taxpayer Relief Act, the amount you can gift to anyone each year tax free goes up to $14,000 per year in 2013.

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