Articles and Columns

Carissa Giebel column: Changes in the Estate and Gift Tax Law

Jan 28, 2013

As you may know, the estate tax exclusion in 2012 was $5.12 million per person. This means that if a person died in 2012, they could pass up to $5.12 million without it being subject to an estate tax. Anything exceeding that would have been taxed at 35 percent.

This was set to expire in 2013 and revert back to $1 million per person, with the rate going up to 55 percent. However, on Jan. 1, Congress basically made permanent the system that was already in place for the past few years, but increased the rate from 35 percent to 40 percent. The exclusion amount will continue to increase annually for inflation, and the 2013 exclusion amount is $5.25 million.

The new law also provides for the marital deduction, allowing a spouse to inherit an unlimited amount. This means that a surviving spouse will never have to pay an estate tax. This unlimited deduction postpones any estate or gift taxes until the death of the second spouse. The surviving spouse must be a U.S. citizen to receive this benefit.

The new law also allows the second spouse to use any unused exclusion amount that the deceased spouse did not use. The new law makes this tax break permanent, which was otherwise set to expire in 2013. This allows a married couple to transfer up to $10.5 million ($5.25 million per spouse) tax free. However, this is not automatic. Unless some trust planning is done, the surviving spouse (or whoever else is the trustee or personal representative of the deceased’s estate) must file an estate-tax return within nine months after the death of the first spouse, in order to transfer the unused exclusion (up to $5.25 million in 2013) to the surviving spouse. If this tax return is not filed within the nine months or an extension is not granted, the surviving spouse loses this opportunity.

The lifetime gift-tax exemption is also $5.25 million per person. This means that lifetime gifting can be done up to $5.25 million per person without being subject to a gift tax. However, the amount of this gift-tax exemption used during a lifetime takes away from the estate-tax exclusion available at death. For example, if you use $2 million of your lifetime gift-tax exemption, then up to $3.25 million (plus any increase for inflation) can be passed estate-tax free at death. Anything exceeding that will be subject to the 40 percent estate tax.

In addition to this lifetime gift exemption, each person can also gift up to $14,000 per person per year, without being subject to a gift tax. A married couple can then gift a total of $28,000 per year to each person they want to gift to. Keep in mind that any gifting may be subject to a penalty if a Medicaid application is made within five years of the gift.

This new law is considered permanent, which means there is no date set for it to expire. However, Congress can change it at anytime. It’s important to keep up with the changes in the laws to make sure your estate plan is accomplishing your goals. It’s always a good idea to have your plan reviewed every few years.

Carissa Giebel is an estate planning attorney and partner at Legacy Law Group LLC. She can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it., or (920) 560-4651.

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