A LOOK AT THE

2013 FEDERAL
ESTATE TAX
“At the end of 2012 the news cycles were dominated by talk of
an impending plunge over the "fiscal cliff." Falling off this cliff
would have resulted in automatic tax increases and spending
cuts.”

GERALD M. DORN
RENO NEVADA ESTATE PLANNING ATTORNEY

At the end of 2012 the news cycles were dominated by talk of an impending
plunge over the "fiscal cliff." Falling off this cliff would have resulted in automatic
tax increases and spending cuts.
Under the laws that existed at the time one of these tax increases would have
been an increase in the estate tax rate. Throughout 2012 the maximum rate of
the estate tax was 35%, but it was scheduled to rise to 55% in 2013.
You may think that there must have been some mistake made in the above
sentence, but in fact it is accurate. The estate tax was indeed going to take the
majority of the taxable portion of your estate.

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The estate tax exclusion was also going to change for the worse. Under the
terms of the Tax Relief, Unemployment Insurance Reauthorization and Job
Creation Act of 2010 the exclusion was set at $5 million for 2011. After an
adjustment for inflation it was $5.12 million in 2012.
After the sunset of this act at the end of 2012 the exclusion was supposed to
drop to just $1 million.

THE AMERICAN TAXPAYER RELIEF ACT OF 2012
At the very end of the year legislators on both sides of the aisle came to a
compromise, and the terms of this compromise became the American Taxpayer
Relief Act of 2012. This legislative measure spared us from the $1 million
exclusion

and

55%

maximum rate.
Because

of

provisions

contained within this act
the estate tax exclusion is
$5.25

million

after

yet

in

2013

another

adjustment for inflation.
The maximum rate of the
tax was hiked from 35%
to 40%.

A Look at the 2013 Federal Estate Tax

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There was some concern about the ongoing portability of the estate tax
exclusion. In this context the
term "portability" defines the
right of a surviving spouse to
use the exclusion that was
afforded to his or her deceased
spouse.
The tax relief act that was
passed back in 2010 made the
exclusion portable in 2011 and
2012.

There

were

no

guarantees regarding the future
of portability.
As it turns out the estate tax is
still portable after the passing
of the American Taxpayer Relief
Act of 2012. So, if you were to
predecease your spouse he or
she would be able to use your
exclusion plus his or her own. This would result in a total exclusion of $10.5
million in 2013.

A Look at the 2013 Federal Estate Tax

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GIFT TAX & ESTATE TAX ARE UNIFIED
You may get the idea that you can give gifts to family members while you are
still alive in an effort to
steer

clear

of

the

estate

tax.

Unfortunately there is
a federal gift tax in
place, so this is not as
simple

as

it

may

sound.
The federal gift tax
carries the same 40%
top

rate,

lifetime

and

exclusion

the
is

$5.25 million.
It is important to understand that this is a unified exclusion. You don't have
$5.25 million for gifts and another $5.25 million to apply to your estate. This
figure encompasses the combination of gifts that you give that are taxable
coupled with the value of your estate.
In addition to this $5.25 million unified exclusion there are also some additional
gift tax exclusions that you can in fact utilize to gain tax efficiency.

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One of these is the annual per person exclusion. You can give as much as
$14,000 annually to any one individual free of the gift tax.
There is no limit to the number of
people you can give this amount
to, and each taxpayer is entitled
to this exclusion. This means that
a married couple could give as
much as $28,000 to any number
of people in a given year free of
taxation.
These can be direct cash gifts,
but this exclusion is also utilized
to fund certain types of trusts or
to give out shares in family
limited partnerships on an annual
basis to enable ongoing tax-free
asset transfers.
There are two other types of gift
tax exemptions that we would like
to highlight here. You may pay
the medical expenses of other individuals as a gift free of the gift tax. These
payments must be made directly to the provider.

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This medical exemption also extends to the payment of health insurance
premiums for someone else.
Americans can also pay the school tuition of others without incurring any gift tax
liability. Once again, these payments must be made directly to the institutions.

GENERATION SKIPPING TRANSFER TAX
Another tax on asset transfers is the generation-skipping transfer tax. This levy
has the same 40%
top rate and $5.25
million exclusion.
It is applied to asset
transfers to a family
member that is more
than one generation
younger than you or
to an individual that
you are not related
to who is at least
37.5 years younger than you.

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CONCLUSION: ADVANCE PLANNING IS KEY
A 40% levy on your estate can have a very significant impact on the financial
future of your family. There are a number of different steps that you could
potentially take to arrange for asset transfers in a tax efficient manner.
The key is to discuss your situation with a licensed estate planning attorney who
has a background assisting high net worth clients. Your lawyer will gain an
understanding of your unique personal situation, become apprised of your goals,
and recommend the appropriate wealth preservation strategies.

REFERENCES
Internal Revenue Service
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-andGift-Taxes
Reuters
http://www.reuters.com/article/2013/02/26/us-column-feldmanidUSBRE91P0NY20130226

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About the Author
Gerald M. Dorn

Gerald Dorn is a shareholder and has been a partner at Anderson, Dorn
& Rader, Ltd. Since 1998. Mr. Dorn has extensive experience serving
wealthy families and business owners in the development of estate, tax
and asset protection planning strategies. He made the decision to focus
his practice in the area of estate planning after witnessing the personal
grief and financial loss suffered by several of his clients as a result of poor planning. These
experiences motivated him to dedicate his professional life to assisting his clients to preserve
their life’s work for their heirs and to create a lasting legacy for those they love. Mr. Dorn is
able to accomplish his mission through the use of a vast number of estate planning tools, both
basic and advanced, for all of his clients at Anderson Dorn & Rader, Ltd.

Just out of law school, Mr. Dorn helped to found Harris & Dorn, LLP., a private firm in San
Diego that concentrated on family law, estate planning and probate cases. Mr. Dorn relocated
the Reno area when he was offered a position as general counsel to a national estate planning
company, drafting documents and teaching continuing legal education classes to attorneys,
financial planners and accountants. Mr. Dorn is a frequent author and lecturer on such topics
as Revocable Living Trusts, Family Limited Partnerships and Family Limited Liability
Companies, Irrevocable Trusts, Tax Planning with Life Insurance, Charitable Remainder Trusts,
Charitable Lead Trusts, Private Foundations, Qualified Personal Residence Trusts, Dynasty
Trusts, Sales to Defective Grantor Trusts, Estate and Tax Planning for IRAs and Qualified
Plans, Trust And Estate Administration and Asset Protection. He is a member of
WealthCounsel, LLC, WealthCounsel Advisors Forum, InKnowVision, LLC, the State Bar of
California’s Estate Planning, Trust and Probate Law Section, the American Bar Association’s
Real Property, Probate and Trust Law Section, the Washoe County Bar Association, and a
Fellow of the American Academy of Estate Planning Attorneys.

Anderson, Dorn& Rader, Ltd.
Legacy and Wealth Planning Attorneys
500 Damonte Ranch Parkway
Suite 860
Reno, NV 89521
Phone: (775) 823-9455
Fax: (775) 823-9456

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