There are a lot of details of the "fiscal cliff" budget deal that may be confusing to Texas readers, but many aspects of the bill will have a direct impact, particularly for those interested in long term financial planning.
The big-ticket item that many in our industry were watching close was the fate of the estate tax and the gift tax. The "Bush tax cuts" put estate taxes and gift taxes at a relatively low rate, taxing only larger estates and doing so rather modestly. Those rates were set to expire, and many worried that Congress would not act and rates would increase dramatically.
Luckily Congress did act. Rates went up slightly but not as much as they would have absent a deal. Under the fiscal cliff deal, the estate tax exemption will remain at $5.12 million and will be tied to inflation in the future. This means that estates under that amount will not be taxed, and estates over that amount will be taxed at a rate of 40 percent. It's important for Texas readers to note that $5.12 million is the unified lifetime gift tax emption, which means that the IRS will take into gifts to friends and family during life and through a will or trust after death.
In order to take advantage of this exemption, Texans should plan their estates thoughtfully and over the long term. That number may seem out of reach for many families, but it includes property, pensions, 401(k) savings, collector's items, investments, and many other assets that are passed from one generation to the next. Some of these assets can be passed during life in order to avoid the probate system and make sure the gifts are given as intended. Other assets are best left for children, charities, or friends after the owner of the assets has passed away.
Source: Forbes, "More Estate Tax Changes Could Follow Fiscal Cliff Deal," Hani Sarji, Jan. 6, 2013.
Information about long term financial is available on our Texas estate planning page.