New Era of Estate PlanningTax Professionals' Resource
September 23, 2013 — 1,761 views
The new tax law mainly exempts most Americans from paying the transfer taxes as most estates will be valued lesser than the exemption amounts. There are several other changes including increase in income tax that require one to revise estate planning.
Rates and Exemptions
The gift and estate tax exemption, adjusted annually for inflation, will remain at $5 million. This provides opportunity for large transfers during a lifetime or death. The tax exemption for the generation skipping tax is also at the same level and is permanent. This tax is usually put on transfers to grandchildren or those that younger than about 37 years of age. As the exemptions are now higher, married couples can transfer over $10 million during lifetime or death. There was a 5% increase on the tax rates on estates that are larger than the exempt rates, making it 40%. The permanency of the changes is welcome news to the tax payers.
With these tax changes, it important to review the estate plan to get the best benefits and avoid unintended ramifications on the estate.
Exemption Portability under the New Law
The exemption portability provision was made permanent. This means that unused exemption of a spouse can be transferred to the other in case of death without having to set up a trust specifically for this purpose. Although, trusts have their own benefits and can be used to make sure that the estate tax exemption is fully utilized. This helps in changing the focus from estate tax planning to estate planning only for taking care of family and oneself.
Taking advantage of the new tax reducing strategies helps to avoid unnecessary probate fees and inheritance tax with exemption rates lower than that of the federal taxes. Proper estate planning can help protect an inheritance, keep the control of assets in trusted hands and ensure that the assets are distributed according to one's wishes. Future law changes are looking at increasing revenue which may garner many current estate plans restricted or eliminated.
Other Provisions under the New Law
There are other provisions and tax changes under the new tax law that also affects estate planning. An existing tradition account can be covered into a Roth account. A Roth account allows the balance to grow tax-free over a lifetime. The annual amount for tax-free gifts has also increased to $14,000. There are enhancements in the deductions allowed in charitable donations of property.
A provision also allows tax-free distributions from an IRA to a charity by clients who are aged 70½ or over directly, and it can go up to $100,000. There is a maximum tax rate of 15% on qualified dividends and long-term net capital gains. Several family related tax breaks are also extended. These provide provisions for tax relief for marriage penalty, expanded dependent care credit, enhanced child tax credit, earned income credit, adoption tax credit and adoption assistance program exclusion. There are several other provisions and tax reducing strategies affecting various other categories such as education and business.