Wills and Trusts: My first read on the “Fiscal Cliff Bill”

I finally had an opportunity to read the actual “Fiscal Cliff” bill which is H.R.8 “American Tax Payer Relief Act of 2012”.  As I write this blog, the Act has not yet been signed by the President, however, he has promised to do so.  It does many things; however, I will limit this brief article to the affect on wills, trusts, and estate taxes.

We must first start with 2001, when President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001.  That Act did much for reducing taxes and, eventually, eliminating estate tax, however it had a sunset provision, causing it to expire at the end of 2010.

In 2010, in the eleventh hour, Congress dealt with the sunset provision, extending it until the end of 2012.  The 2010 amendments set the annual exclusion amount at $5 million per person and allowed gifting equal to the exclusion.

We now arrive at 2012 and Congress has decided to make some positive improvements to the will and trust arena when a decedent passes, with respect to the estate tax that may be applicable.

•    First of all, the $5 million limit for gifting and estate taxes contained in the 2010 amendments remain.

•    The rate, which was 35% under the 2010 amendment and would have gone up to 55% had it expired, now has a maximum of 40% with 37% over $500, 39% over $750, and 40% of everything over $1 million.

•    Finally, this Act is permanent, as the sunset provision contained in the original 2001 Act has been eliminated.

Therefore, as we move on, we now have a “permanent” code provision to give guidance regarding wills, trusts, and estate taxes.  “Permanent”, that is, until Congress decides to modify this portion of the tax code again.

With these changes and non-changes in place, and with the certainty now affirmed, it is time for everyone to consider whether they should modify their estate plan.  Whether you are a person of wealth or not, it is always advised to have your estate plan reviewed, at an absolute minimum, every three years.

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