While we cannot know with any certainty when and if Congress will tackle the great “fiscal cliff,” we do know the following:
- In 2012, the U.S. Federal Estate tax exemption is 5.12 million dollars with a 35% tax rate. What does that mean? It means any estate for a decedent who died in 2012 smaller than $5,120,000.00 U.S. Dollars pays no estate tax. The first dollar over $5,120,000.00 is taxed at the rate of 35%. Essentially, if a loved one passed away on December 31, 2012 with an estate valued at $5,000,000.00, the estate would pay no tax to the Federal Government or the State of Colorado. (The State of Colorado Estate Tax is an interesting subject that will be taken up in a future article—the important thing for fellow Coloradans to know is that no Colorado Estate Tax will be collected for the year 2012. If you are from another state reading this, you will want to check your own state’s tax laws).
- The 2012 Estate Tax law includes the concept of “portability” of the estate tax which allows the doubling of the estate tax for couples without the use of wills and trusts. Since no planning was needed for the last few years for married couples whose net worth was in the 5 to 10 million dollar range, much of that planning was most likely neglected.
- If Congress does not act, the 2013 U.S. Federal Estate tax exemption will drop back to $1 million and carry a 55% tax rate. What does this mean for 2013? Let’s go back to the example of our loved one who passes away with a net estate of $5,000,000.00, but they live one extra day, and pass away on January 1, 2013. No tax will be paid on the first million dollars, but a 55% rate will be incurred on the final $4 million dollars—meaning that living one extra day incurred an additional $2.2 million dollars in Estate Tax.
- The 2013 Estate Tax law currently set to go into effect discontinues the portability concept. A married couple can easily be hit with an additional $550,000.00 in tax if they fail to plan in the New Year.
Is it all doom and gloom? No, but it will be more important than ever to speak with an experienced estate planning attorney to achieve the best outcome for your family. It has been 10 years since the estate tax system has been anywhere near this Draconian. Family farms (or real estate the size of a farm) beware—your land and livelihood stand as the targets of this re-vamped tax.
At Meurer Law Offices, P.C., we are dedicated to helping our clients navigate the difficult issues that face families in the Front Range. Call us today to schedule your free consultation at our offices in Denver, Colorado Springs, or Pueblo.