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Musings From The CEO (Summer 2013)

Late last year many of our clients were scurrying around to do some last minute gifting.  The fear was that the $5,000,000 gift and estate tax exemption would fall back to $1,000,000; therefore, the opportunity to remove a significant amount of wealth from their taxable estates (and the future appreciation on such property) would be lost forever.  Ironically, or typically, after the 12th hour (at approximately 2 a.m. on the morning of January 1, 2013), Congress passed a new tax law making the $5,000,000 exemption permanent and increasing the tax rate from 35% to “only” 40% (as opposed to the anticipated 55%).  Congratulations to those who completed these estate planning maneuvers, as their families will benefit for generations to come from their, albeit maybe last minute, action.

Under the heading “here we go again”, on April 10th, the Obama Administration published their annual wish list of 2014 revenue proposals.  Several of the provisions related to estate planning, including, are you ready for this, changing the estate and generation skipping transfer tax exemptions back down to $3,500,000, and the gift tax exemption to $1,000,000!  The proposal includes another increase in the tax rate to 45%.  Additionally, the Obama Administration proposes to limit and curtail the use of GRATs (Grantor Retained Annuity Trusts), the technique of gifting or selling assets to a grantor trust, limiting the duration of exemption from generation skipping transfer tax to 90 years (as opposed to unlimited dynasty trusts in some parts of the country), and requiring the reporting to the IRS of purchases of life insurance in excess of $500,000.  As President Reagan said so succinctly, “There you go again!”.

One message is clear.  For those of you that embarked on significant estate planning back in 2012 and prior, congratulations.  For those of you who did not, and who need it, giddy-up!

Enough about estate planning.  The American Taxpayer Relief Act of 2012 (which became law on January 2, 2013), and the Patient Protection and Affordable Care Act of 2010 (“Obamacare”) both become effective in 2013. Therefore, we will be spending a lot more time doing income tax planning.  The classic strategies of maximizing your deductions, reducing ordinary income, trying to achieve long term capital gains versus ordinary income, accumulating tax exempt income, deferring taxes and offsetting income with losses all need to be reviewed and expanded.

For high income taxpayers, up to 80% of itemized deductions can be lost.  For high income taxpayers, tax rates will exceed 39.6%, and combined with state income taxes could easily exceed 50%.  For high income taxpayers, dividend and capital gains rates increased 1/3 from 15% to 20%.  For high income taxpayers, the personal exemptions will be phased out and there will be a Medicare surtax on investment income of 3.8% and on earned income of .9%.

Income taxes have taken a sharp increase, deductions are being reduced, and the level of your adjusted gross income is critical to proper planning.  Be prepared to immerse yourself into these new income tax matters between now and the end of the year. For a lot of us, the tax savings or costs will be very significant.


For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.


In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.


  • Mike Hoffman

    Mike is the founding and managing partner of Hoffman & Associates and oversees the general operations and personnel of the firm. He works primarily in the estate planning practice helping clients minimize the effect of the estate tax, ensure orderly transition of generations in family businesses, and maximize asset protections. Mike also devotes a considerable amount of his efforts to the business law and tax planning needs of the firm’s clients. He is licensed to practice in the States of Georgia, Ohio, and Tennessee, and is a Certified Public Accountant.

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