ElderLaw News — The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

The American Taxpayer Relief Act 2012: A Basic Overview

Over the course of the last year, many Americans turned their focus to the potential spike in income and estate taxes as the Bush-era tax cuts were coming to an end.

While America avoided this “fiscal cliff,” the American Taxpayer Relief Act of 2012 (ATRA) was not just a preservation of the status quo.

Many of the Bush-era tax cuts and previously lapsed tax provisions were made permanent under the code. Aside from the new Medicare tax that came into effect on January 1, 2013 as a result of the Affordable Care Act, and any new taxes imposed under state laws, many Americans’ will not notice a change in their paycheck. However, those taxpayers filing individual returns with an income of $400,000 or more and joint filers with an income of $450,000 will be exposed to the new 39.6% tax rate. This increased tax rate for top-bracket taxpayers was paired with a 5% tax raise on both long-term capital gains and qualified dividends. The expired itemized deduction and personal exemption thresholds were also re-implemented and set at $250,000 for taxpayers filing single returns and $300,000 for joint filers. However, popular tax credits such as the American Opportunity Tax Credit, Child Tax Credit, and the Earned Income Tax Credit were extended for another five years.

Few Americans realize trusts are subject to a compressed tax structure under the Internal Revenue Code. At $11,950 of income, trusts are subject to a top tier tax rate of 39.6%. Combined with the increased capital gains, dividend, and Medicare tax rates, trusts can be subject to greater tax liability than other tax sources. Trustees should be aware of how these factors affect the trusts under their control and learn to effectively manage the trust to control this liability.

With regard to estates, when ATRA came into effect, Congress implemented a new 40% estate tax rate. The $5 million exemption was permanently implemented – coupled with an inflation adjustment and a portability election. This sets the 2013 estate tax exemption at $5.25 million. For a married couple, with proper planning, they will be able to pass $10.5 million to their beneficiaries without a gift or estate tax. As we move into the new year, it is important to review your estate plan to insure the provisions of the new law are incorporated into your estate plan.

It is also important to note that for the year 2013, the annual gift exclusion was raised to $14 000. This means someone may gift up to $14,000 in 2013 without paying any gift tax or fulfill any special reporting requirements to the IRS. Simply put, the annual gift tax exemption is an estate planning tool you can utilize that will enable you to make estate gifts prior to death.

While we may be well into the new year, there are obvious effects from the delayed implementation and various provisions of the American Taxpayer Relief Act of 2012. To discuss how this new law affects you, contact the attorneys and staff of The Estate Planning & Elder Law Firm.


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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter. The Estate Planning & Elder Law Firm, P.C. thanks the law firm of Hook Law Center for their input to this newsletter.

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