Tax Changes for 2012

This month’s Alert reviews the inflation adjustments applicable to federal taxation in 2012. It examines changes in the estate, gift, and generation skipping transfer taxes, as well as income taxes.Many changes have occurred with regard to the income, gift, estate, and generation skipping transfer tax in 2012. Most of these changes have come about due to indexing for cost of living.Estate Tax

The applicable exclusion amount (the amount that can be given free of estate tax at death) has increased to $5,120,000 from $5 million. The estate tax rate remains at 35%.

Gift Tax

Now that the estate tax and gift tax have been reunified, the lifetime gift tax exemption amount has also increased to $5,120,000. Remember, as you make use of your lifetime gift tax exemption amount, it reduces the amount that you can give away estate tax free at death. The gift tax rate remains at 35%. The estate tax applicable exclusion amount and gift tax lifetime exemption amount are scheduled to drop to $1 million on January 1, 2013. For individuals with estates in excess of $1 million and married couples with estates in excess of $2 million, there may be significant estate tax savings by making gifts and taking advantage of various advanced estate planning strategies in 2012. We encourage you to have clients with this amount of wealth contact us for a free consultation regarding their particular circumstances.

Generation Skipping Transfer Tax

Likewise, the GST Tax Exemption Amount has been increased to $5,120,000 in 2012. The GST Tax rate remains at 35% for 2012. As with the estate and gift tax, the GST Tax Exemption Amount also is scheduled to decline. The GST Tax Exemption is scheduled to be $1 million, plus inflation adjustment, beginning January 1, 2013.

Special Use Valuation

If an executor chooses to use the Special Use Valuation method for decedents who die in 2012 with qualified real property as part of his or her estate, the aggregate decrease in the value of the property cannot exceed $1,040,000 – up from $1,020,000 in 2011.

Income Tax Exemption Amount

The Income Tax personal exemption amount is $3,800, plus the same amount for each qualifying dependent.

2012 Standard Deductions for Individuals
$11,900 Married Filing Jointly
$5,950 Single
$8,700 Head of Household
2012 Income Tax Rates

Marginal Tax Rates on Individuals Tax Rate Single Head of Household Married Filing Jointly Married Filing Separately 10% Up to $8,700 Up to $12,400 Up to $17,400 Up to $8,700 15% $8,701-$35,350 $12,401-$47,350 $17,401-$70,700 $8,701-$35,350 25% $35,351-$85,650 $47,351-$122,300 $70,701-$142,700 $35,351-$71,350 28% $85,651-$178,650 $122,301-$198,050 $142,701–$217,450 $71,351–$108,725 33% $178,651-$388,350 $198,051-$388,350 $217,451-$388,350 $108,726-$194,175 35% $388,351 + $388,351 + $388,351 + $197,176+ Marginal Income Tax Rates for Estates and Non-Grantor Trusts Taxable Income Tax Not over $2,400 15% $2,401 – $5,600 $360 plus 25% of excess over $2,400 $5,601 – $8,500 $1,160 plus 28% of excess over $5,600 $8,501- $11,650 $1,972 plus 33% of excess over $8,500 $11,651+ $3,011.50 plus 35% of excess over $11,650

We hope you find this information helpful. Our office focuses on estate planning strategies for clients of all wealth levels as well as estate and trust administration. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up to date with information regarding income, gift, estate, and generation skipping transfer taxes. You can get more information about a complimentary review of your clients’ existing estate plans and our planning and administration services by calling, or by visiting our website.