The so-called “fiscal cliff” included changes to the estate tax that would have been devastating for many. If no deal was made to avoid falling over the cliff in 2013 the estate tax exclusion would have been reduced to just $1 million. The maximum rate of the tax would have gone up from the 35% that was in place in 2012 to a staggering 55%.

After the crisis was averted via an 11th hour compromise we were spared the above fate.

Going forward in 2013 we have much of the same with a slight alteration. The estate tax exclusion has been set with a $5 million base that is adjusted for inflation. In 2012 this adjustment resulted in a $5.12 million exclusion. As of this writing the IRS has not determined the exact adjusted figure for 2013, but it will be somewhere in the vicinity of $5 million.

The maximum rate of the estate tax throughout 2012 was 35% as mentioned above. The fiscal cliff deal included an increase in the top rate of the federal estate tax to 40%. This also applies to the lifetime gift tax exemption and the generation-skipping transfer tax exemption.

One of the major positives that came about as a result of the compromise is the continued portability of the estate tax exclusion.

Let’s say that your spouse was to pass away without having utilized his or her exclusion. Prior to 2011 you could not use your deceased spouse’s exclusion. However, the exclusion was made portable as a result of the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Under the terms of this new deal a surviving spouse can still use the exclusion that his or her deceased spouse was entitled to as an individual taxpayer.

To learn more about the estate tax and estate planning in general download our free report: New Jersey Estate Planning Report

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

Each year many of us make resolutions that we intend to make good on once the holiday season has come and gone. This year we would like to urge everyone to consider the importance of estate planning.

The statisticians tell us that the majority of people are going through life without a solidly constructed estate plan. If you are among them you are quite frankly doing your family a disservice.

We never can predict the future, and even if you are a relatively young adult you should execute the appropriate estate planning documents with the well-being of your loved ones in mind.

Sufficient resources must be available to ensure the ongoing well-being of your family in the event of your passing. The selection of a guardian should be in place to protect your children should both parents pass away together in an accident.

It is also important to prepare for the possibility of incapacity via the execution of a living will and a durable power of attorney.

To be comprehensively prepared you would also do well to consider retirement planning as a precursor to the eventual transfer of your financial assets to your heirs after you pass away.

Those who enjoy a comfortable retirement with the ability to leave behind a lasting legacy are generally people who took long-term financial planning seriously. On the other hand, those who are struggling during their senior years are generally going to be individuals who lived in the moment without taking any steps to prepare for the future.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

A lot of people would say that you have paid more than your share of estate taxes if you wind up parting with $471 million or so. The case of the estate of the deceased art collector Ileana Sonnabend demonstrates that this amount may not be enough for the Internal Revenue Service.

It all revolved around a work of art, a sculptural combine called “Canyon” that is the creation of Robert Rauschenberg. This work would be very valuable on the open market if it wasn’t for the fact that it can never be sold.

This is because there is a stuffed bald eagle inserted into the work. Because of federal regulations protecting the species even a stuffed bald eagle cannot be sold.

As a result the art dealer’s children felt as though the estate tax should not be applicable to this work of art that is essentially worthless when it comes to bringing in any financial gains.

While this may make sense to many of us, the Internal Revenue Service valued the piece at $65 million and demanded $29.2 million in taxes along with some $11 million in penalties.

The heirs to the estate had already paid out approximately $471 million in estate taxes on both the federal and the estate levels without including this piece as part of the taxable estate.

Fortunately for Sonnabend’s children an agreement has been reached that has allowed them to donate the painting to the Museum of Modern Art in New York, and in return they won’t be required to pay the taxes and penalties.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

We would like to pass along a reminder about the pending changes to the unified gift/estate tax parameters. A very limited window of opportunity still remains and it is something that you should be aware of if you are serious about wealth preservation.

Nonexempt gifts that you give while you are still alive that exceed the lifetime exclusion amount are taxable. This exclusion sits at $5.12 million for the rest of 2012, but it is going down to $1 million next year.

Simply put, you could divest yourself of resources equaling $5.12 million this year without incurring any gift tax liability.

It is important to understand the wide definition of a taxable gift. There are certain trusts that people establish for the benefit of their loved ones. If they are are irrevocable and you are surrendering incidents of ownership the act of funding the trust is generally going to be considered an instance of taxable gift giving.

Gifts of shares in a family limited partnership are also considered to be taxable.

So, the ideal is to fund these vehicles with assets that are exempt from the gift tax.

Given the fact that the exclusion will $5.12 million for the rest of this year right now may be the ideal time to take action.

This is a very viable opportunity and it is something that you should take into consideration if you have assets in the seven figures. The intelligent course of action would be to sit down and discuss your situation with an estate planning attorney who has a thorough understanding of estate tax efficiency strategies.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

We would like to provide some clarity with regard to the spousal estate tax exemption at the federal level. If you are married you may leave any amount of money to your spouse without incurring any federal estate tax liability.

However, this exemption should not be viewed as an estate planning cure-all. Invariably your husband or wife is going to want to leave the assets that he or she inherited from you to loved ones. At this point the estate tax will in fact be looming because the exemption does not extend to your children or grandchildren.

So, if you simply leave everything to your spouse you are not really accomplishing anything other than a postponement of the inevitable.

Another relevant thing to consider is the portability of the estate tax exclusion. Every person is entitled to a $5.12 million unified estate/gift tax exclusion this year. So what happens to your exclusion once you pass away? Can your spouse utilize it?

The answer is that the estate tax exclusion that went unused would be available to your surviving spouse for the rest of 2012. However, under currently existing laws the estate tax exclusion will no longer be portable in 2013, and in essence your exclusion would die along with you.

It is always possible that changes to the existing parameters could be implemented. Due to the dynamic nature of relevant laws it is always going to be a good idea to keep in touch with your estate planning lawyer to be certain that your existing plan is providing full tax efficiency as circumstances change.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

Estate planning attorneys are often asked questions about how gifts are taxed. We would like to take a brief look at the subject here.

When it comes to gifting there is a giver and a receiver. Someone who receives a cash gift does not have to pay income tax on these incoming funds. There is however a caveat.

For example, if you were to receive a certificate of deposit as a gift there would be appreciation over time. Any earnings that are accumulated above and beyond the initial amount of the cash gift would be taxable.

The giver of gifts on the other hand may encounter some serious tax exposure. You can give as much as $13,000 to any number of individuals every year before you have to concern yourself with the gift tax.

Anything that you give that exceeds $13,000 is taxable at a rate that stands at 35% this year and 55% next year.

It should be noted that there is a lifetime estate/gift tax exclusion of $5.12 million in 2012 that could be utilized to give tax-free gifts exceeding $13,000 per person.

However, this exclusion goes down to just $1 million next year. So let’s say that you gave $600,000 in gifts throughout your life using the lifetime exclusion and you passed away when the exclusion was $1 million. Only the first $400,000 of your estate would pass to your heirs free of the imposition of the federal estate tax.

The above is true if you took no steps to gain estate tax efficiency. If you discuss your situation with a good Central New Jersey estate planning lawyer you may find that you can position your assets in such a manner as to reduce or even eliminate your estate tax exposure.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

Taxation is a threat to the wealth that you have been able to accumulate throughout your life. There are some significant taxes that are levied on asset transfers and you must be aware of them and take the appropriate action to mitigate your exposure.

First of all there is the federal estate tax that is applicable in all 50 states. The maximum rate of this tax in 2012 is 35% and the exclusion is $5.12 million.

When you read the above you may come away thinking that you have no concerns because your accumulated resources do not exceed $5.12 million. The fact is that you should always keep abreast of the current and future estate tax parameters because they are always subject to change.

Next year this $5.12 million exclusion is going down to just $1 million, and the top rate of the tax goes up to 55%.

And then there are death taxes on the state level that you must contend with if you live in the state of New Jersey. The entirety of your estate is subject to the New Jersey estate tax if its value exceeds $675,000. This tax maxes out at 16%.

But in addition to the estate tax there is also an inheritance tax in the state of New Jersey. We are one of just two states that have both an estate tax and an inheritance tax. (Maryland is the other one.)

This tax is paid by each individual who receives an inheritance. It should however be noted that close relatives are exempt from the tax.

If you get together with a good central New Jersey estate planning lawyer you can receive an in-depth explanation of these taxes and how you may be able to reduce or even eliminate your exposure.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

Living in the state of New Jersey has many advantages as we all know. However, we are subject to some rather hefty taxation and this is something to keep in mind when you are engaged in your retirement planning efforts.

If you are living on a fixed income during retirement it can be challenging to be able to keep up with property tax increases. So when you are making your calculations you should definitely keep the possibility of ever rising taxes in mind.

There can be a tax lien placed on your property if you were to become delinquent. This is a serious matter and investors are always ready to pounce on the opportunity to purchase these liens.

Should you fall behind you may be afforded the opportunity to make payments that you can afford, but this is going to be a drain on your discretionary income during retirement. In addition to this interest can be applied, and the rates are often quite significant.

Unless you are certain that you will have no problem paying your taxes throughout the entirety of your life you may want to consider the possibility of moving into a smaller and less expensive home or condominium as retirement starts to beckon in earnest.

If you are unsure about how to go about budgeting for the future, you’re not alone. The intelligent first step would be to discuss your unique situation with an experienced Somerset County financial planning lawyer who has a background guiding local residents toward a comfortable retirement.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

At the beginning of next year the estate tax exclusion is being reduced from $5.12 million to just $1 million. At that time the maximum rate of the tax is going to change as well under currently existing laws. Right now we’re looking at a 35% top rate; in 2013 it goes up to 55%.

When you are calculating your total assets in an effort to assess whether or not you are in taxable territory you must include the value of your home. Using 2009 figures the median cost of a freestanding residence in Somerset County was over $600,000.

So, when you are talking about the typical home being valued in this vicinity a lot of local families will find themselves exposed to the federal estate tax next year.

One way to respond to this would be to place your home into a qualified personal residence trust. When you take this action you are removing the value of the home from your estate for tax purposes.

You can continue to live in the home as usual rent-free for a term that you elucidate when you are drawing up the trust agreement.

Funding the trust with the home is considered to be an instance of taxable gift giving. However, since you are not transferring ownership of the home until the term has expired you are retaining interest in it. As a result its taxable value is nowhere near its full market value.

Employing this strategy may be a good way for some homeowners to gain tax efficiency given the coming changes to the estate tax parameters.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.

It is sometimes said that no good deed goes unpunished and this would seem to apply to gift giving in the United States. We have a federal gift tax that is unified with the estate tax. So, any gifts that you give that exceed the lifetime exclusion that is afforded to you are taxable at a rate of 35% in 2012. If this was not enough, next year the rate goes up to 55%.

If your resources do exceed the exclusion amount you may want to look for ways to transfer assets to people who would someday be inheriting them free of taxation. This can be done in an indirect manner by giving educational and medical gifts.

The IRS does not impose a tax if you pay the tuition bills of students as a gift. Using this exemption you cannot pay for books and fees and you can’t give the money to the student; it must be paid directly to the institution.

You can also pay medical bills for others as a gift free of taxation. In addition to paying for treatment you could also purchase health care insurance for someone else and this gift would be tax-free as well.

The best way to respond to potential estate tax exposure is to sit down and discuss your situation with a licensed and experienced Somerset County NJ estate planning lawyer. Your attorney will evaluate your financial situation, gain an understanding of your wishes, and apprise you of your options with regard to the appropriate tax efficiency strategies.

The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.