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After several years of significant change, 2013 will end with relative certainty related to estate tax laws. However, this does not remove the need for careful year-end planning. Higher marginal income tax rates for ordinary income, capital gains and dividends – coupled with the imposition of the new (and complicated) 3.8% surtax on net investment income for higher-income individuals – can create new challenges and opportunities. A few simple actions may result in savings if taken before year-end.
Transfer Tax Exemption and GST Exemption At the beginning of the year, Congress enacted legislation that “made permanent” the exemption amount that individuals may transfer by gift and/or at death without being subject to federal transfer taxes. Notably, the legislation includes an annual inflation adjustment for the federal exemption amount and a maximum tax rate of 40%. The inflation-adjusted federal exemption amount is $5,250,000 for 2013, and will be increasing to $5,340,000 in 2014. In contrast, Illinois has established its exemption amount at $4,000,000 for state estate tax purposes – which amount is not adjusted for inflation. The rates of Illinois estate tax on Illinois estates range from 8% to 16%. Illinois also allows a marital deduction for state transfer tax purposes for assets passing in qualifying trusts for the benefit of a surviving spouse (including trusts for which a similar federal marital deduction is not elected).
In order to ensure a death tax at each successive generational level, a generation-skipping transfer (“GST”) tax – equal to the highest estate tax rate – is imposed on transfers to grandchildren or more remote descendants. However, every taxpayer is also given a separate federal GST exemption equal to the federal transfer tax exemption (i.e., $5,250,000 in 2013 and $5,340,000 in 2014), although the federal GST exemption is applied separate and apart from the federal transfer tax
http://www.lexology.com/library/detail.aspx?g=266d087f-1091-4bbf-90eb-639a8fc82ece
After several years of significant change, 2013 will end with relative certainty related to estate tax laws. However, this does not remove the need for careful year-end planning. Higher marginal income tax rates for ordinary income, capital gains and dividends – coupled with the imposition of the new (and complicated) 3.8% surtax on net investment income for higher-income individuals – can create new challenges and opportunities. A few simple actions may result in savings if taken before year-end.
Transfer Tax Exemption and GST Exemption At the beginning of the year, Congress enacted legislation that “made permanent” the exemption amount that individuals may transfer by gift and/or at death without being subject to federal transfer taxes. Notably, the legislation includes an annual inflation adjustment for the federal exemption amount and a maximum tax rate of 40%. The inflation-adjusted federal exemption amount is $5,250,000 for 2013, and will be increasing to $5,340,000 in 2014. In contrast, Illinois has established its exemption amount at $4,000,000 for state estate tax purposes – which amount is not adjusted for inflation. The rates of Illinois estate tax on Illinois estates range from 8% to 16%. Illinois also allows a marital deduction for state transfer tax purposes for assets passing in qualifying trusts for the benefit of a surviving spouse (including trusts for which a similar federal marital deduction is not elected).
In order to ensure a death tax at each successive generational level, a generation-skipping transfer (“GST”) tax – equal to the highest estate tax rate – is imposed on transfers to grandchildren or more remote descendants. However, every taxpayer is also given a separate federal GST exemption equal to the federal transfer tax exemption (i.e., $5,250,000 in 2013 and $5,340,000 in 2014), although the federal GST exemption is applied separate and apart from the federal transfer tax
http://www.lexology.com/library/detail.aspx?g=266d087f-1091-4bbf-90eb-639a8fc82ece
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