Right now the top rate of the estate tax is sitting at 35%; this is more than a third of the taxable portion of all the assets that you have been able to accumulate throughout the entirety of your life, all taken from your family in an instant. If that wasn’t bad enough, if the laws stay as they are at the present time the maximum rate of the estate tax will go up to 55% in 2013. No, that is not a typo. The top-rate of the tax was 55% in 2001 and that is where it will return to in 2013 unless some new legislation is enacted in the meantime.
This can get you thinking about giving your loved ones their inheritances while you are still alive so that they can receive them in full. The powers that be are well aware of the fact that people may want to go this route, so there is a gift tax in place that carries the same rate as the estate tax. But, there is a lifetime gift tax exemption that was raised to $5 million recently to match that of the estate tax. So that could leave you thinking that you have a total exemption of $10 million that you could utilize between your estate tax cushion and your ability to give tax-free gifts.
Unfortunately this is not the case. The estate tax and the gift tax are “unified,” and this means that the respective exclusions are unified into one. So if you were to give $5 million in gifts while you’re still alive using this exemption, you would have no estate tax exclusion available to you upon death.
But if there is any good news to pass along it is the fact that the estate tax exclusion is available to each taxpayer. So if you’re married the combined exclusion that would be available between you and your spouse would be $10 million. In addition, the estate tax is now portable so if you were to pass away your surviving spouse could use his or her own exemption as well as the unused exemption that was allotted to you.