During the last days of 2012, the country was abuzz with talk of the financial cliff. One key piece of legislation passed during this time was the American Taxpayer Relief Act of 2012. A number of different areas were affected by these changes including income tax, capital gains tax, estate tax and gift tax. In terms of estate tax, a number of vital provisions and exemptions were made permanent and you can still tax advantage of these today.
For starters, the lifetime estate tax exemptions were permanently set at $5 million for individuals and $10 million for married couples. This figure will also be adjusted accordingly for inflation each year. However, the passing of this legislation also saw maximum tax rate for estates increase to 40%.
Finally, portability was made permanent, no longer forcing the surviving spouse to make an immediate decision about what to do with the estate tax exemption. Under current guidelines, portability allows the living spouse of a married couple to fully utilize the combined $10 million estate tax exemption by claiming any unused portion from the deceased spouse.
However, there maybe be a few things you want to consider. For instance, while these changes help on a federal level, state death taxes may still apply depending on where you reside. When talking to a lawyer about your estate, it is important to plan thoroughly for not only state and federal taxes but also any possible changes in tax law that could occur in the future.