Fiscal Cliff Update 2013

Fiscal Cliff Update: Whether you approve or disapprove of the Fiscal Cliff deal made by President Obama, the Senate, and the Congress, as of the date of this blog post it is the law of the land. While folks on either side of the aisle may argue about income tax cuts or increases for certain income brackets, you can take some comfort in the fact that the Fiscal Cliff deal will have few negative effects on your current estate plans. In fact, you may be surprised to find that the Fiscal Cliff deal was an overall good deal with regards to estate planning. 
Without the fiscal cliff deal in place, the federal estate tax exclusion limit (the amount you could transfer tax-free during your lifetime or after your death) would automatically have dropped significantly from $5,120,000.00 to $1,000,000.00. Estates that were worth more than $1,000,000.00 would have been taxed at the rate of 55%. The Fiscal Cliff deal prevented this from occurring. If your estate is worth more than $5,120,000.00, then your estate will be taxed at a rate of 40% rather than the 55%. Admittedly, the 40% rate is still higher than the maximum rate of 35% which large estates were taxed at last year, but overall, we can be thankful that there was no major drop in the federal state tax limit. 
Furthermore, the Fiscal Cliff deal made the portability law passed in 2010 a permanent feature in estate taxes. For those unfamiliar with the portability concept, the law allows a married couple to combine their federal estate tax exclusions so that they may transfer during or after their lifetime up to $10,240,000.00 tax-free. 
Finally, the Fiscal Cliff deal increases the annual gift tax exclusion. The limit in 2012 was $13,000.00, and it will increase slightly to $14,000.00. This means that each spouse may give a gift valued at $14,000.00 in a single year without that amount counting against the spouse’s federal estate tax exclusion. This yearly amount may also be combined so that both spouses together can grant a gift to a single person worth $28,000.00 without the gift counting against their federal estate tax exclusion. The couple may make gifts to as many people as they choose, and so long as the gift does not exceed $28,000.00, it will not count against the couple’s federal estate tax exclusion. 
While the Fiscal Cliff deal makes more changes beyond those discussed above, these are the issues most people were likely concerned about. Overall, with regards to estate planning, the Fiscal Cliff’s positives outweigh its negatives. For those interested in looking deeper into the Fiscal Cliff deal’s effects on estate planning, I would encourage you to read the article posted at the link below.