The term “fiscal cliff” was coined to describe the paradigm that we faced toward the end of 2012. There were a number of tax increases and automatic spending cuts that would have been implemented at the end of the year if no new fiscal legislation was passed to change things.
A failure to reach an agreement that would stop these tax increases and spending cuts would have resulted in a plunge over the so-called “cliff.”
An increase in the estate tax rate and a decrease in the exclusion would have been in store for us had we gone over the edge. The maximum rate of the estate tax was scheduled to rise to 55%, and the exclusion would have gone down to $1 million.
As a result of the passage of the American Taxpayer Relief Act of 2012 we were spared this fate. This year the maximum rate of the estate tax is 40%, and the exclusion has been set at $5.25 million.
This figure is derived from a base of $5 million that was put in place for 2011 adjusted for inflation. In 2012 the exclusion was $5.12 million after the adjustment was applied.
It should be noted that the top rate of 40% also applies to the gift tax and the generation-skipping transfer tax. And, the exclusion of $5.25 million encompasses your estate coupled with any taxable gifts that you give throughout your life using this unified exclusion.
If your estate is in taxable territory you would do well to speak with an attorney about estate tax efficiency strategies. We would be glad to provide you with a free consultation if you’re interested. To place a request electronically click this link and let us know that you would like to make an appointment: Free Cleveland Estate Planning Consultation