Estate and gift taxes going forward:
What we know and what we don't know

2013 will bring many changes to the Ohio estate tax and to federal estate and gift taxes. We know one change that will occur. We also know the changes that are scheduled to occur. However, we don't know whether the scheduled changes will actually occur or if Congress will enact different changes—and, if so, what the different changes will be and when they will take effect.

First, what we know is that the Ohio estate tax will end for those dying after Dec. 31, 2012. There is no real planning opportunity here, other than to live until 2013, if you can.

The future of the federal estate and gift taxes is much murkier, pending possible, unknown action by Congress. As the laws stand now, you could be facing a triple whammy come Jan. 1:

  • For 2012, the applicable exclusion amount (the amount a person can transfer tax-free to people other than his or her surviving spouse during his or her lifetime or at death) is $5.12 million. That amount is scheduled to go down to $1 million on Jan. 1. (These figures do not include annual tax-exempt gifts of up to $13,000 per recipient.)
  • For 2012, a surviving spouse may use the unused portion of his or her deceased spouse's applicable exclusion amount. This "portability" is scheduled to expire for those dying after Dec. 31.
  • The top federal estate and gift tax rate is scheduled to increase from 35 percent to 55 percent (taking into account a bubble rate of 60 percent, which has the effect of offsetting the lower rates so the entire estate may be taxed at 55 percent) on Jan. 1. (See table.)

What does that mean for you? A married couple dying in 2012 with combined taxable estates (before use of the applicable exclusion amount) of up to $10.24 million could pay no federal estate taxes. If that same married couple die in 2013 and have not equally split the ownership of their assets, their estates could pay more than $4.9 million—quite a large increase. If their combined taxable estates are $5 million, their estates could pay more than $2 million, and if their combined taxable estates are $3 million, they could pay more than $900,000.

While we do not know for certain what the applicable exclusion amount or federal estate and gift tax rates will be in 2013, now is the time to review your estate plan and be prepared for what may be coming. For example, in the right circumstances, making gifts in 2012 to take advantage of the $5.12 million applicable exclusion amount may make sense. In other circumstances, equalizing asset ownership between spouses should be considered. Also, some of you should consider establishing or revising your trusts. These are just a few examples of what you may want to consider.

Please contact a Nicola, Gudbranson & Cooper estate planning attorney to review your estate plan and consider appropriate changes.

—Jim Chriszt