Estate Tax

Estate-Tax Exemption for 2013

By TOM HERMAN

Q: I have a question on the recently passed changes to the federal estate-tax laws for 2013. What are the exemptions for estates?

—P.O., Reed City, Mich.

A: The basic federal estate-tax exclusion amount for estates of people who die in 2013 is $5,250,000, the Internal Revenue Service announced recently, up from $5,120,000 in 2012.

The federal estate-tax exclusion now is set permanently at $5 million and is indexed for inflation, says Catherine Grevers Schmidt, a partner at Patterson Belknap Webb & Tyler LLP and head of the law firm's trusts and estates department. But because of inflation, the amount for 2013 works out to $5,250,000.

The federal gift and generation-skipping transfer taax exemption is the same as the estate-tax exclusion amount, she says. The top federal estate-tax rate on the largest estates is now 40%, up from 35% in 2012. Transfers from one spouse to the other typically are tax-free.

A reader from Manhasset, N.Y., recently asked about "portability." Under the new law, portability became permanent.

Portability effectively makes the federal estate-tax exclusion amount "portable" between a husband and wife. When one spouse dies, the other typically can get the deceased spouse's unused exemption amount without having to set up trusts or other tax-saving maneuvers.

Even if your estate falls below the federal threshold, don't automatically ignore the subject. "With the increasing federal estate-tax exclusion, there will be an increased focus on state estate taxes in states which impose an estate tax," Ms. Schmidt says.

Several changes were brought about to the current estate tax law following the legislation of the H.R.8 American Taxpayer Relief Act of 2013. The estate and gift tax impose a tax on assets owned by an individual at death and assets gifted by the individual during his or her lifetime in excess of the exemption amount. Over the last decade, the exemption amount has fluctuated to...