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Making Sense of Current Estate Tax Laws

Question-Mark-Roof-150-x-shutterstock_106204478After years of complication and confusion in the area of estate planning—the result of raging professional and political debate—the American Taxpayer Relief Act of 2012 (ATRA) finally provided some clarity. 

Although legislation can always be amended or repealed by further legislation, it’s worth it to review your current estate plan in light of the stability ATRA provides.

Under ATRA, the following provisions currently apply to estate planning for the 2014 fiscal year:

  • The top rate for the estate tax remains at 40%.
  • The estate tax exemption stands at an index of $5.34 million, as does the generation-skipping transfer tax (GST) exemption.
  • A widowed spouse retains the ability to claim the remainder of their late husband or wife’s estate tax exemption.
  • The estate and gift tax systems allow the benefits of sheltering lifetime gifts and inheritances under the estate tax exemption.
  • Taxpayers are allowed a deduction for state estate taxes.

Note:  The “extended portability” provision comes with the notable benefit of allowing a married couple the opportunity to shelter as much as $10.68 million. However, this portability doesn’t apply to GST exemptions and may not be recognized by the state in which the taxpayers reside. Spouses may wish to consider a credit shelter trust, as well, in order to protect future appreciation from estate taxes.

These stipulations offer, in most cases, new options to increase the value of your estate plan. Depending on what your plan had been prior to the signing of ATRA, you and your estate planning professional may wish to make small adjustments or if applicable, major overhauls to take advantage of the new options.

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