A Bargain or More Can Kicking?

Much of the talk in 2012 was related to the “fiscal cliff,” when a number of tax breaks would expire and automatic spending cuts would be triggered.  Born out of Congress’s inability to resolve major issues at the end of 2011, they created the concept of sequestration which would be so unbearable that no one would risk it.  That is, of course, until they did and we fell off the cliff for a day.  Ultimately, in the move that was supposed to result in a grand bargain, a number of resolutions were reached while other important issues we pushed off for later.  As a result, it is important to take a careful look at your financial picture now.  Reviewing your estate planning documents now will improve your chance of using the new laws to your benefit without falling prey to outdated documents!

Among the deals made were some resolutions on the estate tax.  The estate and gift taxes were permanently unified, which means that individuals may give away a combined, set amount during their life or at the time of their death. There was speculation that lifetime tax-free gifts would be capped at a lower level.  The amount that may be given away during life or at death is set at $5 million per individual.  However, more importantly, it is indexed for inflation.  This means that the applicable exclusion amount for estate and gift tax in 2013 is $5.25 million.  Additionally, it means that individuals who maxed out their $5.12 million exclusion amount through gifting last year may still be able to take advantage of some estate tax exclusion planning!
Additionally, the concept of portability has been retained in the tax law.  This means that if the appropriate steps are taken, including filing a timely estate tax return, married couples may use their spouse’s exclusion amount.  Essentially, married couples may exclude $10.5m from estate tax in 2013.  The amount will continue to rise in future years as inflation increases.  For those who simply make occasional large gifts or make annual gifts, the amount that may be given away tax free each year increased to $14,000 in 2013 from $13,000 in 2012.  This amount of gifting applies for each donor and each donee and does not apply against the estate tax amount or require a gift tax return be filed.

However, a number of issues were not formally addressed and may impact ongoing negotiations in Congress and the financial future of the nation.  Among issues yet to be addressed are the debt ceiling, the automatic spending cuts (delayed for two months), and proposed cuts to Medicaid and Medicare.  Now is the time to ensure that you and your family are protected during uncertain economic and political times.

Revisiting your estate plan now, along with Medi-Cal  or VA Aid and Attendance Non Service Connected Pension Benefits planning and your other retirement, tax, and financial planning may provide your family with the financial security they need.  Do not get taken off guard if the economy falters again!

Estate Planning: The Price of Organization, Rewards, Gifts, and Wondrous Tax Things… FREE REPORT: This complimentary report, focused on Estate Planning, is comprised of many of Mr. Miller’s articles from his long running column for the largest regional newspaper in San Diego County. This report will guide you through the questions surrounding getting your estate planning in order.