As we've mentioned in the past, the start of 2013 will see a substantial increase in the estate tax, often referred to by many as the death tax. While Congress still has the ability to take action in the next few weeks to prevent this from happening, this appears to be highly unlikely to happen.
A dramatic change is that the amount of money or other property that can be given away or received without paying federal estate taxes is being greatly reduced to $1 million from the previous figure of $5.12 million. To make matters worse, the tax rate after the exclusion amount is exceeded will leap from 35 percent this year to 55 percent in January of 2013.
There are many instances in which this will prevent property owners, whether of real estate or small businesses, from being able to successfully pass along their holdings to their families or other desired heirs. To avoid these drastic consequences, in which the fruits of a lifetime's efforts wind up simply lining the government's coffers, individuals may benefit by considering making gifts to their intended beneficiaries either directly or via a trust before the clock strikes 12 a.m. on New Year's Eve.
To do this properly, consultation with an experienced estate planning attorney is essential, in order to avoid unintended tax consequences. The changes in federal estate tax law will result in as many as 114,600 estates paying taxes next year, often in substantial amounts, as compared to only 8,600 estates which did so in 2011.
Surviving spouses are also facing new limitations. Previously, if a husband or wife died without using the entirety of their exemption from federal estate taxes the unused amount was then able to be used by their surviving spouse, in addition to the amount the surviving spouse already had as an exemption. With the new year, that provision is terminated.
Source: Fox Business, "Prepare for Tax Changes and Protect Your Legacy," Robert Baltzrell, November 28, 2012