Shockingly, and in the “final hour,” Congress actually acted and prevented us from falling off the “fiscal cliff.” The act they implemented has sweeping changes to our taxes. The purpose of this article is to simply summarize some of the changes brought about due to the Taxpayer Relief Act.
Tax rates: The Bush tax brackets of 10%, 15%, 25%, 28%, 33%, and 35% will remain the same and are made permanent. This means that most Americans will see no change in their tax rates. For households making $400,000 a year (single) and $450,000 a year (joint filers and qualified widow(er)s) there will be a new 39.6% tax rate. These dollar amounts will be adjusted for inflation after the 2013 tax year.
Estate Tax: The new Act permanently keeps the estate tax exemption amount at $5,000,000 (as indexed for inflation). It also increased the top tax rate from 35% in 2012 to 40% in 2013 and beyond. The Act also continues portability which allows the estate of the first deceased spouse to transfer his or her unused estate tax exclusion to the surviving spouse.
It is important to understand that simply because that Estate Tax exemption amount is at $5,000,000 it is just as important now as ever before that you have the proper estate planning documents in place. One of the reasons to create an estate plan is to minimize the taxes that will be owed to the government, but that is only one of the reasons. Besides avoiding estate taxes, a proper estate plan will also avoid the costs and delays of probate, offer creditor protection to a surviving spouse and children, offer divorce protection to a surviving spouse and children, and ensure that your hard earned money goes to who you want, when you want, and how you want with the least amount of expense and delay and the greatest amount of privacy.
For Part 2 of this article, click here.
Contributed by MH Arrowhead, Prescott and Flagstaff Estate Planning Attorney and Partner David T. Eastman
About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years. Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects. We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.