Cost Of Living Adjustments By IRS Inadvertently Cause Increase In Estate And Gift-Tax Exclusions

Tuesday, January 15, 2013 08:25
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Cost Of Living Adjustments By IRS Inadvertently Cause Increase In Estate And Gift-Tax Exclusions

Tags: Congress | estate planning | gifting

New cost-of-living adjustments (COLA) by the IRS will grant taxpayers an extra $130,000 in 2013 to leave their heirs on a tax-free basis.
 
The estate tax exclusion will now be $5.25 million in 2013, up from $5.12 million in 2012. That brings the combined spousal threshold to $10.5 million.

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The last-minute budget deal passed by Congress at the end of 2012 made the then current estate and gift tax laws permanent and indexed them for inflation so that they will increase over time.
 
If no deal had been reached, the estate and gift tax exclusions would have reverted back to the previous level of $1 million for individuals and a total of $2 million for married couples.
 
The COLA also impacts the standard deduction for individuals and personal exemption thresholds as well as income tax rate brackets.
 
Those making more than $400,000 per year individually and over $450,000 jointly will become subject to a new tax rate of 39.6%.
 
Investors scrambled toward the end of 2012 to position themselves as well as they could against the uncertainty surrounding the fiscal cliff.
 
Now that the tax situation has been clarified, estate planning decisions can be made with more robust considerations than tax incentives.

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