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Estate Planning For 2013

November 12, 2012

November 6, 2012, has come and gone, leaving most of us wondering what on earth just happened and more importantly what is in store for our great country. I believe that President Obama didn’t win the election; instead, Mr. Romney lost it. He along with the Republican leadership in the House and Senate took their collective eyes off the political ball and handed the election to the D’s. While Obama gets a “do-over”, he must deal with a very divided electorate.


Enough political commentary; the Obama victory leaves us with:


a) Obamacare is here to stay. The greatest healthcare delivery system in the world will now be controlled by the Government. The single-payer system will become a reality.

b) Dodd-Frank is here to stay. The Government will have a much greater say in how U.S. businesses operate.

c) Taxes will go up.

d) Gridlock in Washington remains alive and well.


The following Income/Estate Tax Rates (2012 and 2013) are on the books today. Subject to a lame duck season miracle, THIS IS WHAT WILL HAPPEN ON JANUARY 1, 2013!!!!!!!.

1.         Top Income Tax Rates

 2012                         2013

a.         Wages & Self-Employment Income          35%                   39.6% + .9%

   Additional Medicare Tax 

     (MAGI over $250,000)

b.         Dividends                                                 15%                        39.6% 

     (MAGI over $250,000)

      (Hello tax exempt income!)

c.         Capital Gains                                             15%                          20%


d.      Net Investment Income                                      3.8% Affordable Care Act

 (rents, royalties, dividends,                        Surtax on the lesser of: (i) net

 interest, annuities (not IRA’s), passive        investment income, or (ii) the

 income and net gain from the sale or        excess of MAGI over $250,000

 disposition of property)

e.     Payroll Tax (FICA)                                        4.2%                         6.2%

        MAGI= Modified Adjusted Gross Income.  $250,000 represents  the married filing joint amount.


2.         Estate and Gift Tax Exclusions and Rates


Gift                       Estate                        GST                             Tax

Year       Exclusion             Exclusion                   Exclusion                    Rate

 2012      $5.12M                 $5.12M-gifts               $5.12M-gifts                 35%

 2013     $1.0M                  $1.0M-gifts               $1.0M-gifts                 55%


3.         Planning Opportunities to Consider NOW!    


a.         Harvest Capital Gains in 2012!  Sell capital assets (gains), elect out of installment gain treatment, and think very hard before you do a 1031 exchange in 2012.


b.         Accelerate income into 2012 and defer expenses (losses) into 2013.


c.         Consider large gifts to children (in GST Trusts). Gift interests in Family Limited Partnerships before     12/31/12. Especially useful if assets are likely to appreciate. To accomplish this, you will need to create the GST Trust and have the partnership interest appraised. This takes time!


d.         Sell assets to children (in GST Trusts). Interest rates are at historically low rates as are some asset values (especially real estate). Elect out of Installment Gain Treatment (accelerate Capital Gains into 2012).


e.         Make annual exclusion gifts ($13,000/person/year) and pay medical expenses and tuition only payments, directly to the provider of the services (doctor/hospital/educational institution). The $13,000 is increased to $14,000 on January 1, 2013.


f.          Consider converting an IRA to a Roth IRA.


If we may be of assistance, please feel free to contact Renee, Don or me. January 1, 2013 will be here before you know it!





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