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How Does the Fiscal Cliff Legislation Affect Your Future Planning?
Posted in Estate Planning

The American Taxpayer Relief Act of 2012 has opened the door to many planning opportunities in 2013 and beyond that otherwise would have been unavailable. “The Fiscal Cliff In Depth” provides an example of how the act of balancing estates could shelter a couple’s assets from excess estate taxes:

Assume that a husband and wife have $5.25 million of assets apiece in their names (a total of $10.5 million). The husband dies in 2013 and all of his assets pass to a credit shelter trust for his wife’s lifetime benefit without estate tax. The wife dies later in 2020, and both her assets and the assets in her husband’s credit shelter trust have grown to $8 million apiece (a total of $16 million). Assuming that the inflation adjustment had increased the estate tax exemption to $6.3 million in 2020, the wife’s estate will have only $1.7 million of her estate subject to estate tax. At a 40 percent tax rate, that would result in $680,000 of estate tax. Alternatively, if the husband’s assets had passed outright to the wife at his death and portability had been elected, at the wife’s death she would be able to shelter $11.55 million ($5.25 million of the husband’s exemption and $6.3 million of the wife’s). This would leave $4.45 million subject to estate tax and generate $1.78 million of estate tax. This approach more than doubled the estate tax due!

To learn more about Jeremy Gerch and his practice, please visit his profile.

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