By now, you’ve probably heard a lot about the fiscal cliff, as well as the compromises reached in Washington. The compromise legislation is officially known as the American Taxpayer Relief Act (“the Act”). From the point of view of estate planning, Wills and trusts; the deal reached permanently sets the exemption level for federal estate, gift and generation-skipping transfer tax (“GST”) at $5,000,000. This is the exemption amount which was in effect for 2011 and 2012, but would have dropped to $1,000,000 for individuals dying or gifts made after 2012. However, the compromise permanently increases the top estate, gift and GST rate from 35% to 40%.

The exemption amount for the New Jersey estate tax remains at $675,000.

With federal estate tax issues resolved for the foreseeable future, now is a good time to review your estate plan to ensure that it maximizes your ability to save estate taxes and make more available to your children after you are gone, especially for your child with a disability.

Other provisions of the Act include:

  • Income taxes. The Act keeps the “Bush” tax rates intact for individuals with taxable income under $400,000 ($450,000 for married taxpayers, $425,000 for heads of household). Income above these levels would be taxed at a 39.6% rate.
  • Alternative Minimum Tax (“AMT”) patch. The Act permanently patches the AMT.
  • Capital gains and dividends. The Act raises the top rate for dividends and capital gains from 15% to 20% for taxpayers who are subject to the new 39.6% bracket.
  • Deduction limitations. The Act limits the personal exemption and itemized deductions for taxpayers earning more than $300,000 per year.

We will update our website and Facebook page as more information becomes available about this important tax legislation.

Published on Jan 2nd, 2013. © Copyright 2013 Hinkle, Fingles & Prior, P.C., Attorneys at Law. All rights reserved.
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