The federal estate tax and the gift tax are unified. There is a unified $5.25 million exclusion in 2013.

As a result, you could give $5.25 million in taxable gifts throughout your life without incurring any gift tax liability. However, if you did this all of your estate would be subject to the estate tax.

Aside from this $5.25 million unified exclusion there are some additional gift tax exemptions. Each taxpayer can give gifts to unlimited numbers of individuals each year that do not exceed a certain amount per gift.

In 2012 this amount was $13,000, but it has been raised to $14,000 in 2013. So, a married couple could combine their exemptions to give us much as $28,000 to any number of recipients this year tax-free.

People who are exposed to the federal estate tax may want to consider taking advantage of this annual exemption by giving gifts over an extended period of time. It should be noted that the gifts do not have to be direct cash gifts; this exemption could be used to incrementally fund certain types of trusts or distribute shares in a family limited partnership.

There are a couple of other exemptions that you should be aware of as well. If you wanted to pay for health insurance as a gift to someone you could do that without incurring any gift tax liability. You could also pay medical bills tax-free as a gift.

There is also a school tuition exemption. You can pay the tuition of any number of students equaling any sum of money without receiving a tax bill. But, this is a tuition only exemption and it doesn’t extends to books, fees, dorm expenses, etc.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

The guidelines that are utilized by the Internal Revenue Service to collect estate and gift taxes were defined anew by the enactment of the American Taxpayer Relief Act of 2012.

In 2011 a $5 million exclusion was put into place with an adjustment for inflation to be added in 2012. This adjustment brought the 2012 exclusion up to $5.12 million. The maximum rate of the estate and gift taxes during those two years was 35%.

Now that we are working under the terms of the aforementioned American Taxpayer Relief Act of 2012 we have a slightly altered framework. The exclusion has remained constant, and after the latest adjustment for inflation we have a $5.25 million exclusion in 2013.

In spite of the fact that this piece of legislation is called a “taxpayer relief act,” it included an increase in the top rate of the federal estate tax, the gift tax, and the generation-skipping transfer tax to 40%.

Unlike parameters that were put into place in the recent past this framework carries no sunset or expiration date, so pundits have referred to this arrangement as being “permanent.” This is really not an accurate definition because nothing is permanent in the realm of taxation. Legislation can always be passed that alters the landscape.

In fact, these parameters are already being threatened. The president has announced his budget plans for 2014, and an increase in the estate tax is part of the plan.

This budget proposal would increase the top rate of the estate tax to 45% in 2018, and at that time the exclusion would be reduced to just $3.5 million.

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Ryan M. Denman and Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

There is an unlimited marital federal estate tax exemption, so a surviving spouse can inherit any amount of money from his or her deceased spouse without incurring any estate tax liability.

Same-sex marriages are legal in several of the states and in some foreign countries. However, if an American taxpayer is legally married to someone of the same sex the federal government won’t recognize the marriage. This is because of provisions contained within Section 3 of the Defense of Marriage Act.

Section 3 defines marriage as something that can only take place between a man and a woman.

In 2009 a woman named Thea Spyer  passed away, leaving a considerable amount of money to her partner Edith Windsor. The two women were legally married in Canada after spending some four decades together as a couple.

The federal government imposed an estate tax levy exceeding $360,000 on this asset transfer. Edith Windsor filed suit, contending that the Defense of Marriage Act is unconstitutional.

The first court to hear the case agreed with Windsor, and the Court of Appeals agreed as well, and they ordered a refund of the tax levy.

Now the case has been escalated all the way to the highest court in the land. The United States Supreme Court is hearing arguments in this case at the time of this writing.

If the Court finds in favor of Windsor the playing field will be considerably altered for affluent gay couples who are engaged in the process of estate planning. We will continue to follow this case, and when a decision is rendered we will examine its impact.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

The Internal Revenue Service wants to keep track of the gifts that you give throughout your life so they can levy the gift tax if and when it becomes necessary.

There is a unified gift/estate tax exclusion. This exclusion sits at $5.25 million this year. A base of $5 million was put in place in 2011, and there are ongoing adjustments for inflation.

So to clarify, if you gave $5.25 million in taxable gifts throughout your life and you passed away this year the entirety of your estate would potentially be subject to the estate tax.

You must file Internal Revenue Service Form 709 to report gifts that you give during the year that are taxable or potentially taxable. It should be noted that you can ask for a six-month extension if you need one by filing Form 8892.

Last year there was a scramble among many high net worth individuals to give out large gifts. This was because of the fact that the unified transfer tax exclusion was scheduled to go from $5.12 million to just $1 million in 2013.

Because of this the IRS is getting a high volume of gift tax returns this year as compared to previous years.

As it turns out the exclusion did not go down to $1 million after all; the new budget agreement included a retention of the base $5 million exclusion with annual inflation adjustments.

It should be noted that not all of the gifts that you give each year are counted toward your unified exclusion. You can give a certain amount to an unlimited number of different recipients before the tax kicks in.

This amount has been raised to $14,000 in 2013. This is a per person annual exclusion, so a married couple would have a total of $28,000 that they could give to any number of people tax-free this year.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

The portability of the estate tax is still in place after the agreement that was reached to avoid many of the automatic tax increases and spending cuts that were in the offing for 2013.

To explain what portability means in this context we will provide a simple example. Let’s say that Alex and April have been married for many years. They both worked throughout their lives, and each of them contributed to the family wealth.

Under the tax code every taxpayer is entitled to an estate tax exclusion. In 2013 this exclusion is $5.25 million. This means that Alex and April have a combined exclusion of $10.5 million this year.

The matter of portability involves the ability of a surviving spouse to use the exclusion that his or her deceased spouse was entitled to. Since both Alex and April contributed into the store of assets that comprises the family’s estate, it would seem that the surviving spouse should have both exclusions to utilize after his or her partner passes away.

Fortunately the estate tax exclusion is portable, so if Alex was to die in 2013 April would have a total execution of $10.5 million assuming none of the exclusion afforded to Alex had been utilized.

To take advantage of the portability option action is required. The executor of the estate must file Internal Revenue Service Form 706 to elect portability. This must be done no later than nine months after the passing of the decedent in question, but it is possible to petition the Internal Revenue Service to grant a six-month extension if it is necessary.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

During 2012 there was a lot of uncertainty about the future of the federal estate tax. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was set to expire at the end of the year.

If this would have taken place without any new legislation, passing the estate tax exclusion would have been just $1 million in 2013, and the maximum rate of the tax would have gone up to 55%.

As we all know, there is a lot of farmland in the state of Iowa, and while many farmers may not be “cash-rich” as it were, they may possess some very valuable land. The prospect of a reduction in the estate tax exclusion was weighing heavily on the minds of many Iowa farmers.

“Last fall, when the threat was there of going to a $1 million (exemption), it was causing great concern considering the value of farmland in Iowa,” said Ryan Denman of the Duffy Law Office in an interview with the weekly newspaper Iowa Farmer Today.

Ryan then goes on to explain how our firm reached out to our clients who would be impacted if a reduction to the estate tax exclusion was to take place.

The president had been quoted as saying he was looking for a $3.5 million exclusion, so we went forward with the expectation that the exclusion probably wouldn’t get any lower than this once a compromise was reached.

In the end, the estate tax exclusion retained its $5 million base with ongoing adjustments for inflation. This year, the estate tax exclusion is $5.25 million.

In spite of this $5.25 million exclusion, Ryan suggested that ongoing planning is still necessary: “There are other benefits of doing the planning because clients are concerned farmland will continue to appreciate in value. We’ve had a crazy streak here with farmland going up 20-30 percent a year.”

Given increasing land values and ongoing adjustments to relevant laws you can be exempt from the estate tax one year and exposed the next. Because of the ever-changing landscape, it is important to keep in touch with your estate planning lawyer on an ongoing basis so you can make adjustments if and when they become necessary.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

There are always those who are calling for an estate tax repeal, and over recent years there have been bills introduced on Capitol Hill that would indeed repeal the tax.

Why would anyone think that an estate tax repeal makes sense?

We all must pay taxes on our income. We are then left with a remainder. No one suggests that there should be some type of additional tax imposed on any principal that you placed in the bank after you paid your taxes.

However, your after-tax savings are indeed subject to the estate tax if they exceed a certain amount. Many people simply do not see the fairness in this. They say it is an exercise in double taxation.

Another thing that some individuals find hard to understand is the rate of the estate tax if it must in fact exist. This year the maximum rate of the estate tax is 40%. Critics of the tax feel that a federal levy that is poised to consume four dollars out of every 10 that you are passing along to your loved ones is more than a little bit excessive.

And finally, there is the argument that the estate tax is selectively imposed. If the tax is necessary and fair, why should some people be required to pay the tax while others are not based on a rather arbitrarily selected exemption amount?

Regardless of how you feel about the inherent fairness of this tax it is something that is indeed in place. The good news is that legal steps can be taken to mitigate your estate tax exposure.

If you are interested in learning about tax efficiency strategies that may be available to you contact our firm for a free estate planning consultation.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Tax  law  is important to estate planning. Here are details on the new estate tax law but remember, estate planning never was only about federal estate taxes.  The most important things in life are not things.

For help here are details of on the new estate tax law:

http://www.forbes.com/sites/hanisarji/2013/01/06/more-estate-tax-changes-could-follow-fiscal-cliff-deal/2/

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

I don’t mean this politically, but the federal government never seems to disappoint. It does not matter whether you are a Republican or Democrat, you often just want the government to stop arguing and do something. When there is a problem, you want action, not political posturing. The only thing worse than posturing is when elected leaders take a vacation instead of handling a looming problem.

There is a big looming problem on the horizon. Unless the law is changed, at the beginning of next year, the estate tax exemption will be reduced to $1 million dollars. That’s going to create problems for a lot of American families, especially those with family farms and family businesses. So, what is Congress doing to address this problem? Nothing. Congress is in recess until after the November elections. Senators are even making statements that they do not expect any action after the elections. The sides are too far apart to reach a needed compromise.

This means that you need to see an estate planning attorney. You cannot wait for Congress to act. They are telling you they won’t. Make sure that you have made your plans accordingly.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

In our last two posts, we discussed the different proposals that Mitt Romney and President Obama have for the estate tax and for investment taxes. We hope this has given you a better understanding of the issues in the upcoming election so that you can make an informed decision about which candidate you want to vote for.

However, we also hope that you do not vote in the election and then forget about estate tax and investment tax issues. You should continue to stay informed because no matter who wins the election, he will still need to get his proposals through Congress before anything goes into effect. Analysts predict that after the election Congress will still be more or less equally divided between the parties. That means that both candidates will have a difficult time passing all of the proposals that they want. You need to stay informed about any post-election changes.

We also want to point out that there are many other issues in this election that could impact your family. Make sure that you inform yourself about them and then get out and vote for your candidate of choice.

We are grateful you follow us and value your comments and input.  You Can Also Find Us Online: Facebook | Twitter | LinkedIn Thanks again.

Ryan M. Denman and Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.