FISCAL CLIFF: What the 2013 Estate Tax Legislation means to you

Earlier this year I wrote two articles predicting the potential changes to the estate law in 2013, which were likely to occur or not occur. The much talked about expiration of the Bush era tax cuts which were set to expire on December 31, 2012 has endearingly become known as the fiscal cliff. By now we have all heard that on January 1, 2013 at 10:15pm the Congress approved legislation avoiding the fiscal cliff making the Bush era tax cuts permanent law. As a NY trust and estate lawyer, it is my job to counsel clients accordingly. Last summer I looked at a tax bill passed by the U.S. Senate in July of 2012 mirroring the identical legislation passed on January 1, 2013. After the July 2012 legislation, NY estate and trust lawyers should have acknowledged from these early indications that there were not going to be any significant changes to the estate law going forward. Instead, many NY estate lawyers began panicking at the end of 2012 anticipating the expiration of the Bush Era Tax Cuts and upcoming overhaul of the estate law. These NY estate lawyers created such a panic; in the months prior to the fiscal cliff my offices were fielding countless inquiries from frightened clients who wanted to sell off all their property and assets. These were ordinary people who were convinced that their income derived from dividends, capital gains and federal estate tax liability were going to be taxed exponentially and impoverish them. They were wrong. Not only was the fiscal cliff avoided with the legislation passed on January 1, 2013, the new law actually increased estate and capital gains tax exemptions for most Americans. Here’s how;


Arguably, any good NY Trust & Estate lawyer will tell you the most important component of the estate tax law is the Unified Credit. The Unified Credit is the amount of wealth you and your spouse’s estate can transfer to your heirs free from Federal Estate Tax Liability. This is the barometer that tells me as your NY estate lawyer what kind of estate strategy we need to prepare. Should we begin removing assets from your estate or can we pass them onto your heirs free from Federal Estate tax liability. Pursuant to the recent changes to the Federal Estate Law the following are the enacted changes for 2013 and beyond.

Unified Credit


$5,100,000.00 per individual $10,200,000.00 per married couple


$5,250,000.00 per individual $10,500,000.00 per married couple

As you see above not only did the Unified Credit not decrease in 2013 as it was set to, it actually increased to the inflation adjusted amount of $10.5 million per married couple.


The Unlimited Marital Deduction is a vital tool in any NY estate lawyer’s arsenal. It allows the first spouse to die the right to pass their entire estate to their surviving spouse deferring any estate tax liability until the surviving spouse passes. Prior to the fiscal cliff, the estate tax law had incorporated something called portability. As long as the executor files a proper estate tax return for the first spouse’s estate within 9 months of the date of their death, portability allows that executor to transfer any unused portion of their unified credit tax exclusion to their surviving spouse’s estate. For example lets suppose spouse A dies first with an estate of $4 million, and spouse B dies thereafter with $6 million in addition to the $4 million inherited from spouse A. Portability if properly executed will afford spouse B’s estate the right to pass all $10 million free of any Federal Estate Tax. Portability was set to expire along with all the other tax cuts on December 31, 2012. However, with the new legislation the Senate saw to it that portability is here to stay making it a permanent part of estate tax law.



$5,100,000.00 per individual $10,200,000.00 per married couple


$5,250,000.00 per individual $10,500,000.00 per married couple

Pursuant to the expiration of the estate tax cuts, the amount of money an individual was allowed to gift during their lifetime was set to roll back to $1,000,000.00 or $2,000,000.00 per married couple. As you can see above, the gift tax for individuals and married couples not only did not roll back to the $1,000,000.00 as scheduled on December 31, 2012; it increased to $10.5 million per married couple.

The gift tax exclusion is the amount of money an individual and married couple can give away during their lifetime tax-free. These gifts are made throughout one’s life and commonly referred to as inter vivos gifts by NY estate tax attorneys. The gift tax exclusion has two functions for NY trust and estate lawyers, one lowering the amount of money in a client’s estate if they need to become eligible for social services (Medicaid) and allowing wealth to pass tax free to their distributees when their distributees need it most. Think about how financially constricting it would be for families to be taxed when they passed money to their children and grandchildren for school tuition, cars, houses or any other big-ticket items.

Under the new Estate Laws, each year an individual is now free to gift $14,000.00 or $28,000.00 per married couple to as many people they want, free of it counting toward their lifetime gift tax exemption. In 2013 this gift tax exemption was raised from the 2012 amount set at $13,000.00 per individual and $26,000.00 per married couple. This is an invaluable tool for a married couple to contribute to their children or grandchildren’s 529-college savings account without generating any gift tax liability.

Federal Estate Tax Rate

2012 2013

35% 40%

Simply put, this is the rate of tax imposed on any estate assets over the amount of the Unified Credit, $5,250,000.00 per individual and $10,500,000.00 per married couple. If you think this 5% increase is hard to swallow you should be comforted by the fact the Unified Credit was supposed to be rolled back to $1,000,000.00 on December 31, 2012, subjecting any estate over that amount to the Federal Tax Rate of 55%.





15% (for households making less than $450,000.00/year)

20% (for households making over $450,000.00/year)

All in all 2013 has been a pretty good year so far for the Federal Estate Tax as well as for those NY trust & estate lawyers who have to navigate around it. The fiscal cliff will eventually be forgotten. However the permanent estate tax cuts that the fiscal cliff left behind will become an important part of formulating our estate plans for the future. All of the information above can be found on the U.S. Government’s Internal Revenue website. If you or a loved one need to sit down with one of our NY trust & estate lawyers, feel free to call the Law offices of Jason W. Stern & Associates at (718) 261-2444 for a consultation.

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