After waiting with baited breath for news of the pending fiscal cliff, we all now know the outcome of that melodrama. Well, most of the outcome anyway. As to the lesser-known portion of the affected legislation—changes in the estate tax law—what we don’t yet know could matter to some families as much as what we have learned so far. Although the bill now headed to President Obama’s desk only slightly tweaked the exemption limit to $5,000,000 and the rate to 40%, what about other estate issues?
- Did we retain “spousal portability?” This feature of the 2011 – 2012 changes was a welcomed simplification to use of both spouses’ tax exemptions; it was retained, which is very good news…although even those rules and how they all work continue to evolve.
- Will the exemption be indexed? This aspect of last year’s tax structure prevents future fights about adjusting the limit when estate values inflate in future years. It appears Congress kept this in place, although we don’t know if it has been reset with a 2013 $5,000,000 starting point. We expect so.
- Can you use the exemption fully during life, or will the new law limit the amount someone can gift to the prior $1,000,000 limit? The permission to use up to the full exemption regardless of timing permitted some terrific planning opportunities over the past couple of years. Again, first reports indicate this has stayed in the mix, which is much welcomed.
- Could we finally re-couple state and federal estate taxes? This has been an unresolved and growing issue over the past decade, one we hope gets fixed. Early indications are that this has not been fixed.
- What did someone miss in the rush, or at least not mention in the summaries of the “good news?” The other shoe may yet drop, but in ways nobody knows just yet. Stay tuned to your favorite business publications, news reporters and other bloggers for what we may yet find out!
So, in light of the current state of affairs, what should you do with your plans?
For most of our clients, although these points may impact their plans, they should not be the only areas that need attention. While tax issues matter, the other decisions you should make about your plans will be driven more by non-tax than tax consequences. These are something we call “The Seven Deadly Sins of Estate Planning,” and if you don’t know what they are or if you’ve committed any of them, take some time to view this recent discussion of each one: