Even though the next big political conflict is probably just around the corner, Congress and the President managed to reach a deal over the fiscal cliff that has significant implications for anyone with an estate plan. Though you should speak to your attorney about the specific points of the deal and how they might affect you, here are some of the big highlights.
Your children get $10.5 million tax-free.
Under the terms of the agreement the estate and gift tax provisions imposed by the federal government will still allow for a $5 million exemption for each individual. Adjusted for inflation, the 2013 amount will be equal to $5,250,000. Additionally, the law extended the “portability” of a deceased spouse’s unused exemption, meaning that a married couple can effectively pass their children $10.5 million tax-free.
Your estate taxes have gone up.
If you pass gifts over the $5.25 million individual limits, the amount you’ll have to pay has increased. Previously, gifts over the exemption limit were taxed at a maximum rate of 35%, but beginning in 2013, that number climbs to 40%. That rate applies to any gifts given during your lifetime, gifts you transfer through your estate, as well as generation-skipping gifts.
You can give gifts of up to $14,000 per year, per person.
You are allowed to give individuals gifts of up to $14,000 in 2013 and not have those gifts count against your lifetime gift tax exemption. This $14,000 amount applies to individuals, so spouses can effectively give double that each year.