2012 Estate Planning Annual Newsletter
Estate Planning & Tax Updates
by Laura Hoexter
Federal Estate, Gift and Generation-skipping Tax Exemptions
The 2012 federal exemption against estate, gift and generation-skipping taxes is $5,120,000 per person. This is an increase over the 2011 rate of $5 million per person, due to the inflation adjustment. Absent further Congressional action, the Tax Relief Act, which allowed the $5 million exemption indexed for inflation, will expire on December 31, 2012. If the Act expires, the estate, gift and generation-skipping tax rates currently at 35% will revert back to a maximum rate of 55%, and the estate, gift and generation-skipping tax exemptions will plummet to $1 million per person. Additionally, if the Act expires, the estate tax portability provision, effective only in 2011 and 2012, will disappear.
State Estate Tax Exemption
The state estate tax exemption remains at $2 million per person for 2012. Each Washington estate in excess of this amount will be subject to state estate tax at rates of 10% to 19%.
Federal Gift Tax Annual Exclusion
The annual exclusion against federal gift tax remains at $13,000 for 2012.
Federal and State Tax Summary
The chart below outlines the federal and state exemptions and tax rates for 2009 through 2013.
| Federal Estate Tax | Gift Tax | GST Tax | WA State Estate Tax | |||||
| Year | Rate | Exemption | Rate | Exemption | Rate | Exemption | Rate | Exemption |
| 2009 | 45% | $3.5M | 45% | $1M | 45% | $3.5M | 10% – 19% | $2M |
| 2010 | 35%* | $5M* | 35% | $1M | 0% | $5M | 10% – 19% | $2M |
| 2011 | 35% | $5M | 35% | $5M | 35% | $5M | 10% – 19% | $2M |
| 2012 | 35% | $5.12M | 35% | $5.12M | 35% | $5.12M | 10% – 19% | $2M |
| 2013** | 37% – 55% | $1M | 41% – 55% | $1M | 55% | $1M*** | 10% – 19% | $2M |
| * Executors may elect to use the old 2010 regime with 0% federal tax and modified carryover basis | ||||||||
| ** Assuming no further Congressional action | ||||||||
| *** Indexed for inflation | ||||||||
Washington Trust Act
On January 1, 2012, the new Washington Trust Act went into effect. The revised Act, among other things, requires additional reporting requirements for Trustees, ways to establish trust situs in Washington, and mandatory beneficiary notice requirements. Although the Act applies to all trusts created before, on, or after January 1, 2012, the notice requirements only apply to irrevocable trusts created after December 31, 2011 and revocable trusts that become irrevocable after December 31, 2011.
Clients with revocable living trusts do not need to amend their documents. However, given the new notice and reporting requirements, they may want to revise their trusts to address some of these issues, and potentially reconsider their choice of Trustee.
Clients who want to execute irrevocable trusts will want to work closely with their attorney to determine the best choice for Trustee given the new reporting requirements, and ways to plan around the notice requirements.
Estate Planning for Digital Assets
Have you ever wondered what happens to your online photos or iTunes account after you die? Will your Agent have access to your email to continue paying your bills if youre incapacitated? As we move quickly towards a paperless world, it is more important than ever to consider digital assets in your estate planning. Download FAQ Sheet.
Income-Splitting for Washington Registered Domestic Partners
In March 2011, the IRS issued a revised Publication 555. This updated Publication provides guidance on reporting community income not only to married couples, but to registered domestic partners (RDPs) as well. The new guidance is a departure from the IRS’s prior position which failed to recognize community property earned by Washington RDPs, and required them to report their entire income on their individual Form 1040s. The new rules require Washington RDPs to split all community property income between their returns, so that each reports 50% of such income. For most couples, this can result in a tax saving.
Questions? Ask One of the Authors
For clarification or more information on any of the topics in this email, please contact one of the authors:
Laura Hoexter
[email protected]
(206) 689-2153