The holidays are upon us again, a period when most people spend more sustained time with their families than during any other point of the year.
While this obviously is a great chance to gather together and rejoice, it’s also a time when many will reflect on their life, their family, and yes – their estate plan. In fact, the holidays may present the best opportunity for older generations within each family to discuss where and to whom they want their assets distributed when they’re gone.
One aspect of the 2012 holiday season that no one looks back with fondness upon was the “fiscal cliff” debate in Washington, D.C. In the end, we did not fall off the fiscal cliff, and as of December 31, 2012, some very important estate tax provisions were made permanent eliminating uncertainty within previous legislation. As a result, families can now plan to distribute their estates with more confidence after a decade of planning under previous laws that contained expiration dates. Note the emphasis on “certainty” and “confidence” instead of “permanence.” Nothing in Washington, D.C. is permanent, but these tax provisions are the law until/unless Congress changes them.
With that in mind, below are some key considerations to make when assessing the current landscape of your estate planning.
- The federal gift, estate, and generation skipping transfer tax exemptions were unified and set at $5.0 million in 2011, with a provision to adjust annually for inflation. ($5.12 million in 2012, $5.25 million in 2013, $5.34 million in 2014). So in 2013, a person can gift up to $5.25 million estate and income tax-free. Doing so transfers the assets and all of the future growth on those assets out of their estate. This may be an extremely beneficial planning tool for high net worth individuals wishing to pass significant assets to the next generation.
- The maximum federal estate tax rate increased from 35 to 40 percent. Therefore, an estate or gift greater than $5.25 million (2013) is now subject to a 40 percent top estate tax. That increase makes the proper estate planning even more important to conserve assets.
- The “portability” provision of the federal estate tax exemption between married couples was made permanent. This allows couples to transfer up to $10.5 million (2013) through lifetime gifting or at the time of their death. It also allows the unused portion of the exemption of the first spouse who dies to transfer over to the surviving spouse, without having to set up estate planning for this single purpose. This portability provision is something new, and you should be sure your estate planning documents account for it.
Estate planning really boils down to taking care of our families and ourselves the way we want, either through lifetime gifting or distribution of assets upon death.
Working with your legal counsel, Fragasso Financial Advisors can offer you ideas from a financial planning standpoint that will help you determine how you can pass assets to future generations in the most tax-efficient way. We believe that estate planning is not a single event. Our team is dedicated to working with you through the years to make sure your plan is updated when necessary to reflect the state of your family, your assets and – in this case – current legislation.
Deborah F. Graver, CFP®, CLU®, AIF®, is President and Chief Operating Officer at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at email@example.com. She can also be reached for comment at 412-227-3200.