Well, as most Americans know by now, the Congress passed new tax legislation on January 2, 2013, to keep us from going over the “fiscal cliff.”  Oh, wait . . . I guess they didn’t keep us from going over the “cliff.”  We actually did, but then they “fixed” it.  Politics aside, the short version is that we have new tax legislation.  And, I think it’s very important for families and individuals to know about how the new tax legislation affects the estate tax, gift tax, and charitable planning areas.  I won’t go over the income tax side of things in this post, because those are the provisions that are most talked about in the media outlets.

So, here are some of the key points of the tax legislation as it relates to estate tax, gift tax, and charitable planning:

  • As I mention in this previous post, they reinstated the ability for certain individuals to make a direct transfer to a charity from their IRA.  And, they even gave a limited time window (until January 31, 2013) to make the direct transfer and have it count for the 2012 tax year.  That pretty nice!  Read my previous post to find out the qualifying details.
  • The Federal gift and estate tax exemption (and generation skipping transfer tax exemption) will remain at $5,000,000, indexed for inflation.  The inflation adjustment puts the exemption amount at roughly $5,250,000 for 2013.  There are two key things to point out on this: (1) this means that most families and individuals will not have to pay any estate tax when they pass away (a good thing!), and (2) the opportunity to transfer a large amount of assets (e.g. small business interests and other rapidly appreciating assets) remains (this is a very good thing).
  • The tax rates on estates over the exemption amount is raised from 35% to 40%.
  • The “portability” provisions remain.  Basically, this allows the unused exemption of the first spouse to die to transfer to the surviving spouse without having to set up trust planning specifically for this purpose.  BUT, and this is a BIG but, most of the articles you will read or news shows you will watch will act like this is an automatic thing.  As in, Bob passed away and only used up $2,000,000 of his exemption amount, so Mary will “automatically” have her $5,000,000 plus Bob’s left over $3,000,000.  NO – that is not how it works.  You have to “affirmatively elect” portability after the death of the first spouse, and you must do so on a timely filed estate tax return (e.g. you must act fast!).  Please spread the word on this! With so much misinformation out there, I foresee a LOT of families losing their portability opportunities.  And, even with portability, there are myriad reasons to have a comprehensive and caring estate plan.
  • Unrelated to the new law, but interesting to note, the amount an individual can gift on an annual basis free of estate tax is increased to $14,000 for 2013.

So, overall, I think the new tax law is a good thing.  And, according to the law itself, it is “permanent.”  Obviously, in Washington DC, “permanent” just means that it will stay this way until they decide to change it, but it’s still better than the constantly changing world we’ve been living in for over a decade.

Honestly, I’m really happy to see that most families and individuals won’t have to worry about estate taxes.  Why?  Because, although many families and individuals will think it doesn’t mean they need to do estate planning, those who do planning will focus on what’s truly important about planning – creating a legacy based on who they are and what’s important to them (e.g., passing on their Whole Family Wealth).

And as a reminder, here just some examples of the “peace of mind” items that can be accomplished with a caring, comprehensive estate plan:

Why wouldn’t you take this opportunity to create your legacy and make sure your family is taken care of?  Call us at 616-827-7596 to schedule your Peace of Mind Planning Session today!

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you.  He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning.  He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.