Estate Tax Exclusion, Rate Set for 2013

Clarity has now emerged with regard to the estate tax rate and the exclusion that is in place for 2013.

The maximum rate of the estate tax, the generation-skipping transfer tax, and the gift tax has been raised from the 35% that was in place in 2012 to 40%.

The estate tax exclusion, which would have been just $1 million if no deal had been reached to avoid falling over the fiscal cliff, has been set at $5.25 million by the Internal Revenue Service. This figure is derived from a $5 million base that was put in place in 2011 adjusted for inflation.

When you consider the above you should keep in mind that the estate tax is unified with the gift tax. So you do not get a $5.25 million exclusion to give non-taxable gifts along with another $5.25 million exclusion to pass along inheritances to your heirs.

The $5.25 million exclusion refers to a combination of gifts that you give while you are alive that are considered to be taxable by the IRS and the value of your estate as it is being distributed to your loved ones after your passing.

This tax will always be controversial and there will always be those calling for an outright repeal. The estate tax is imposed on resources that you have left over after you paid taxes all of your life so those who question the fairness of this federal levy do have some logical ground to stand on.

However, the estate tax is alive and well in 2013 and you should certainly discuss tax efficiency strategies with a good estate planning lawyer if the value of your estate is anywhere in the vicinity of $5.25 million or more.