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What the Fiscal Cliff Agreement Means For Your Estate

It’s February and the fiscal cliff drama has faded since the president and Congress reached an agreement. In all the news coverage surrounding the story, the last-minute negotiations, and the subsequent deal, you may have missed the practical effects the deal has on your estate plan. While many people won’t need to worry about the estate planning elements of the fiscal cliff deal, there are several issues you should be aware of.

Inheritance Exemptions

If Congress and the president failed to reach a deal, 2013 would’ve brought the federal estate tax exemption down to $1 million. However, the deal allows for a $5.25 million exemption in 2013. This means that each individual person is exempt from estate taxes if they leave an estate valued at $5.25 million or less.

Portability Remains Indefinitely

In addition to the $5.25 million exemption limit the fiscal cliff deal also extends the portability of that exemption between spouses. Portability means that married couples have the ability to use the unused portion of their spouse’s exemption. So, if your spouse dies and leaves behind an estate worth $3.25 million, you can add the remaining $2 million to your exemptions limit.

Estate Tax Increase

For those gifts that exceed the exemption limit, the taxable portion will now be subject to a 40% estate tax. This is a small increase from the previous 35%, but a much smaller increase than would have occurred had the deal not been reached.

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