The year 2012 ended with many Americans wondering how their estate plans might change when the “Bush Era Tax Cuts” expired at midnight December 31. Fortunately a quick act of Congress, otherwise known as the The American Taxpayer Relief Act, was put into effect in the pre-dawn hours of January 1, 2013. While not all of the old laws remained in effect, as your Massachusetts elder lawyer will tell you, there was good news for seniors and their estate plans.
The The American Taxpayer Relief Act preserved the $5 million exemption on federal tax, meaning that if you have assets under $5 million, you won’t pay any taxes on that money. For individuals who have an estate of more than $5 million, the tax rate has increased from 35% to 40%. Although the tax rate increased, had the The American Taxpayer Relief Act not been signed, the exemption would stop at $1 million and the tax rate would be 55%. While the exemption is now a permanent law, the tax rate may increase in the future.
Another piece of good news from the The American Taxpayer Relief Act is that it remains portable, meaning that married couples can use the unused portion of their deceased spouse’s exemption. For example, if Tom and Mary have $9 million and Tom passes away, the money can be transfered tax-free to Mary since they are a married couple, and the exemption is not used. When Mary dies, the entire $9 million can be passed on to the couple’s heirs by using the $5 million exemption of both Tom and Mary. Of course this is not done automatically; your Massachusetts estate planning attorney will explain which tax forms need to be filled out upon passing so that the exemptions can be used.