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2013 Estate Tax Law Changes:  What You Need to Know

It is no secret that changes in federal estate tax law are imminent at the beginning of 2013 when the Bush-era tax cuts expire. Some of the most important changes set to occur, unless Congress decides otherwise, may specifically impact estate planning. An accounting of your estate may include your ownership of cash, stocks, real estate, insurance and even your interest in a business. Estate Planning continues to be an important part of any set of financial goals; however, in light of the pending alterations to the estate tax law a discussion with the qualified investment advisors at WealthTrust Arizona should be considered.

President Obama’s fiscal year 2013 budget proposal contains these and other estate tax law changes:

• Permanently return the estate ($3.5 million exemption/45% top tax rate), gift ($1 million exemption), and generationskipping transfer (GST) ($3.5 million exemption) taxes to the 2009 rules. 

• Starting in 2013, make permanent the portability of unused exemption amounts between spouses.

• Require a minimum 10-year term for grantor retained annuity trusts (GRATs) and a maximum term of the life expectancy of the annuitant plus ten years, which will have an impact on the ability to use GRATs for estate tax planning purposes. 

• Coordinate certain income and transfer tax rules for grantor trusts, which would affect estate planning with intentionally defective grantor trusts (IDGTs). 

Since 2004, the estate tax threshold has changed five times, going from an exemption for estates valued at $1,500,000 to the current level of $5,120,000. 

Without legislative action, in 2013 the estate tax law change will affect estates valued at $1 million or more. The Tax Policy Center estimates that change could cause 53,000 estates to be subject to the estate tax at a top tax rate of 55%. For small business owners, the effect of an estate tax threshold change could be significant. If there is no cash available to pay the estate tax in the event of the owner’s death, then assets (and potentially the business itself) must be sold to meet the estate tax obligation. A solid estate plan may make the difference between the heirs continuing on in the family business or having to close up shop.

At the current estate exemption level of $5 million, the estate tax is not broadly felt. However, the IRS recently updated the personal wealth data it derives from estate tax filings that showed an estimated 1.8 million Americans have a net worth of at least $2 million. While those folks are currently exempt from the estate tax, they will not be so fortunate if the estate tax threshold is lowered to $1 million in 2013. The knowledgeable investment advisors at WealthTrust Arizona are keeping abreast of the changing tax landscape for 2013 and can help you position your portfolio and your estate for the changes ahead.

Financial Strategies for Estate Tax Planning

While it remains to be seen what action Congress will actually take on the estate tax law, now is an appropriate time to review your current estate plans and discuss how potential estate tax law changes may impact your financial legacy. The professionals at WealthTrust Arizona, in conjunction with the estate attorneys at Colby & Thornes, PLLC, can develop strategies to maximize your transfer tax savings. These may include:

• Accelerated gifting

• Business succession planning

• Updated estate documents

• Establishment of trusts

Even the IRS website concedes, “The laws on Estate and Gift taxes are considered to be some of the most complicated in the Internal Revenue Code.” Fortunately, clients of WealthTrust Arizona benefit from a collaborative effort between the firm’s experienced investment advisors and the knowledgeable estate planning professionals at Colby & Thornes. We can assist you with federal estate tax planning and also work with your CPA to develop specialized strategies based on your needs. It is important to be prepared for whatever estate tax law provisions may eventually be enacted.


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