4/11/2013
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2013: Income and Estate Tax Considerations
What changed and what changes should you make?
By: John T. O’Shea,
Director Wealth Planning Strategies
Welcome to today’s presentation
This presentation (including the PowerPoint and any written materials
provided) has been prepared for you as an educational benefit. This
information should not be relied upon by you as tax or legal advice.
Examples included in this presentation are hypothetical and for
illustrative purposes only.
You should always consult with your own attorney and/or tax advisor
before making changes to your individual investment, financial plan
and/or estate plan.
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4/11/2013
The impact of income tax changes
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Social Security tax
6.20% Social Security tax
 In 2011 and 2012 as part of the payroll tax holiday, this tax was 4.2%
 In 2013, we revert to 6.2% on the first $113,700 of income
Single Taxpayer
Married Taxpayer
First
$113,700
First
$113,700
Social Security Tax
6.20%
(up from 4.2% in 2012 due to
expiration of "payroll tax holiday")
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Medicare tax on earned income
Historical Medicare tax:
 1.45% Medicare tax on earned income (with no ceiling).
Additional tax:
 Beginning in 2013, 0.9% Medicare tax on earned income exceeding
$200,000 (single) and $250,000 (married).
Single Taxpayer
Married Taxpayer
Medicare Tax
$0 to $200,000
$0 to $250,000
1.45% on all income
$200,000 +
$250,000 +

2.35%
(includes additional 0.9% tax on
income exceeding threshold)
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Medicare tax on earned income
Additional 3.8% tax on the lesser of:
 Taxpayer’s net investment income for the
tax year; or
 Modified AGI (MAGI*) in excess of:
 $200,000 if single
 $250,000 if married or surviving spouse
Single
Taxpayer
Married
Taxpayer
Net Investment
Income Tax
$0 to $200,000
$0 to $250,000
None
$200,000 +
$250,000 +
(tax on lesser of net
investment income or
MAGI exceeding threshold

“Net investment income”
includes interest, long-term
capital gains, dividends,
after-tax annuities, royalties,
and rents – other than from
trade or business.
It does not include
distributions from a qualified
plan or IRA.
*MAGI is defined effectively
as an individual’s AGI
increased by certain foreign
earned income and housing
costs.
3.80%
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Medicare tax on unearned income
Example: In 2013, Pat, single, has earned income of $175,000 and
investment income of $40,000.
 Pat is subject to a 3.8% tax on $15,000 (MAGI in excess of $200,000)
 If Pat earns income in excess of $200,000, all of the investment
income ($40,000) would be subject to a 3.8% tax
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Itemized deduction phase-out rules reinstated
Itemized deductions will be reduced by 3% of AGI exceeding $250,000
(single) or $300,000 (married); up to 80% of itemized deductions.
Example: Arthur and Emily have an AGI of $400,000 and have $75,000
of itemized deductions. Their itemized deductions will be reduced by
$3,000 ([$400,000 - $300,000] x 3%).
 Net effect: More of Arthur and Emily’s income is subject to tax.
 Unreimbursed medical expenses, investment interest and casualty or
theft loss will not be limited and will not be subject to the phase-out.
Single
Taxpayer
Married
Taxpayer
Itemized Deductions
Personal Exemptions
$250,000 +
$300,000 +
Itemized deductions phased
out by 3% of income
exceeding threshold up to
80% of deductions
Personal Exemptions
phased-out by 2% for every
$2,500 exceeding threshold
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4/11/2013
Personal exemptions phase-out rules reinstated
Personal exemptions will be phased-out by 2% for every $2,500 by which
income exceeds $250,000 (single) or $300,000 (married).
Personal exemptions are completely phased-out at $375,000 (single) and
$425,000 (married).
Example: Pat is single and has $325,000 of income. Pat will “lose” the ability
to claim 60% of Pat’s personal exemption ([$325,000 - $250,000]/$2,500 =
30 x 2%). The personal exemption for 2013 is $3,900. Pat’s allowable personal
exemption will be $1,560 ($3,900 - $2,340).
 Net effect: More of Pat’s income is subject to tax.
Single
Taxpayer
Married
Taxpayer
Itemized Deductions
Personal Exemptions
$250,000 +
$300,000 +
Itemized deductions phased
out by 3% of income
exceeding threshold up to
80% of deductions
Personal Exemptions
phased out by 2% for every
$2,500 exceeding threshold
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Federal income tax brackets for 2013
2013 Federal Tax Rates
(Single Taxpayers)
10%
$0 - $8,925
2013 Federal Tax Rates
(Married Taxpayers)
10%
$0 - $17,850
15%
$8,925 - $36,250
15%
$17,850 -- $72,500
25%
$36,250 - $87,850
25%
$72,500 - $146,400
28%
$87,850- $183,250
28%
$146,400- $223,050
33%
$183,250 - $398,350
33%
$223,050 - $398,350
35%
$398,350 - $400,000
35%
$398,350 - $450,000
39.6%
> $400,000
39.6%
>$450,000
The above table references rates applied to taxable income, and does not reflect rates applied to capital gains, qualified dividends or
the alternative minimum tax.
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4/11/2013
Capital gains and dividend taxes
 Long-term capital gain and qualified
dividend tax rates continue at 15%
for taxpayers below $400,000 (single)
or $450,000 (married) of income.
LT Capital Gains and Dividend Tax Rates
 Short-term capital gains are taxed
at ordinary income tax rates.
 Municipal bond income continues
to receive favorable income
tax treatment.
 These rates are in addition to the
3.8% net investment income tax
imposed under the Affordable
Care Act.
Income Tax
Bracket
LT Capital Gains
Dividend Tax Rates
10%
0%
15%
25%
28%
15%
33%
35%
39.6%
20%
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Estate tax planning considerations
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4/11/2013
Estate tax law changes
Under American Taxpayer Relief Act of 2012:
 The estate tax exemption is permanently set at $5,000,000 per
taxpayer to be indexed for inflation annually ($5,250,000 in 2013).
 The estate, gift and GST tax exemptions are equal.
 Portability has been made permanent.
 The top estate/gift tax rate is 40%.
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The federal estate tax
Year
Exemption
2001
$
675,000
Top Tax Rate
55%
2002
$ 1,000,000
50%
2003
$ 1,000,000
49%
2004
$ 1,500,000
48%
2005
$ 2,000,000
47%
2006
$ 2,000,000
46%
2007-2008
$ 2,000,000
45%
2009
$ 3,500,000
45%
2010
Estate Tax Repeal/Opt-in
0%
2011
$ 5,000,000 + portability
35%
2012
$ 5,120,000 + portability
35%
2013 and beyond
$ 5,250,000 + portability
40%
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“Portability” for unused
federal estate tax exemption amount
“Portability” allows the surviving spouse to elect to claim any unused
federal estate tax exemption of a deceased spouse.
For couples whose combined federal taxable estates are less than
$10.5 million, portability can:
 Simplify planning (e.g., everything to surviving spouse);
 Provide greater flexibility for married couples with substantial
retirement plan accumulations; and
 Alleviate the need to balance asset ownership between spouses.
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Risks associated with relying on “portability”
 If the surviving spouse remarries, the “portable” amount may
be impacted.
 Credit Shelter Trust planning allows appreciation of trust property
to avoid estate taxation.
 To date, no state offers portability. Credit Shelter Trust planning
may remain appropriate for state tax purposes.
 The Generation Skipping Tax exemption is not portable.
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Issues to consider
1. Do your planning documents reflect your wishes for the disposition
of your assets?
2. Did the recent tax law changes create planning opportunities for you?
3. What impact does “portability” have on your estate plan, if any?
4. Does the increased estate tax exemption amounts change how you
should structure your estate plan?
5. Is “disclaimer” planning an appropriate choice for your estate plan?
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Federal gift tax
Federal transfer tax system combines tax-free amounts you can
transfer during your lifetime or at death.
 May give an unlimited amount to your U.S. citizen spouse and/or
qualified charitable organization(s)
 May give up to $14,000 each year (or $28,000 if spouse agrees to
split the gift) per individual donee with no reporting necessary
 May give an unlimited amount for tuition and medical expenses
(if paid directly to provider)
 In addition to the above, each taxpayer may make up to $5,250,000 of
taxable gifts during life. Any taxable gifts made during lifetime reduce
the amount of the taxpayer’s federal estate tax exemption.
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Estate planning considerations
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What motivates you to plan?
1. Provide for management of your financial affairs during incapacity.
2. Express personal desires regarding care, medical treatments
and/or future placement upon incapacity.
3. Provide loved ones with financial security during incapacity
or after death.
4. Desire to emphasize certain values.
5. Tax (estate, gift and/or income) and administrative efficiency.
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Basic planning documents
Living Will or Healthcare Directive:
 Provides statement of intent
Medical Power of Attorney:
 Designate person(s) to make medical decisions if you are incapacitated
 Authorize person(s) to have access to protected medical records under HIPAA
Durable Power of Attorney for Financial Purposes:
 Authorize person(s) to handle your financial affairs if you are disabled,
and avoid a court-supervised conservatorship;
 Provide access to qualified plans and IRAs (invest, rebalance, withdrawals,
elections, conversions, beneficiary changes); and
 Authorize agent to continue regular giving patterns and to sign tax returns.
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How property passes to your beneficiaries
Your Assets
Sole Ownership
Tenancy in Common
Community Property
Joint Tenancy w/ROS
Tenancy by Entirety
Transfer or Payable
on Death
Retirement Assets
Trust Property
Life Insurance
By Intestacy or Will
(Probate)
By State Law
(Non-Probate)
By Agreement/Contract
(Non-Probate)
Beneficiary
Beneficiary
Beneficiary
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4/11/2013
Basic planning documents
Last Will and Testament:
 Directs distribution of your assets upon your death;
 Does not avoid probate;
 State-specific rules as to creation and execution;
 Common Elements:
 Name a personal representative
 Nominate a guardian for minor children
 Name a presumed survivor between spouses
 Consider individual, charitable or testamentary trusts
to receive your property
 Include federal and state tax planning provisions
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Basic planning documents
Revocable Trust:
 Using a joint trust, or establishing two separate trusts?
 Agreement that determines how property is to be managed and
distributed during lifetime and after death;
 Provides continuity of management;
 When properly funded during life, avoids probate;
 State-specific rules as to creation and execution;
 Common Elements:
 The parties – Grantor, Trustee, and Beneficiary
 Can be amended or revoked during life
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Questions
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The Wealth Management offering
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4/11/2013
A new level of partnership,
an extraordinary level of service
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personalized advice* to help eligible employees
make sound decisions that directly address your
goals and financial situation.
 A holistic view of your financial picture,
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likelihood of achieving goals
To be assigned to an
Advisor, call:
Jarrod Fowler,
Wealth Management Director
Telephone 1-214-626-8308
jfowler@tiaa-cref.org
 Providing education and guidance via
personalized recommendations
 A realistic assessment of current savings
and investment strategies
*Through Ibbotson Associates tool.
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A new level of partnership,
an extraordinary level of service
We stand ready to help you achieve your goals, by providing:
 Personal service
 Comprehensive retirement plan advice*
 Customized solutions can include those drawn from a broad range of
TIAA-CREF and non-TIAA-CREF products and services
*Through Ibbotson Associates tool.
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4/11/2013
TIAA-CREF Wealth Management Group
As a TIAA-CREF Wealth Management client, you have access to a
personal advisory relationship to help you address your financial needs
as you plan for – and live well in – retirement
 Focused, stable organization
 Dedicated team committed to working in your best, long-term
financial interest
 Highly customized and holistic advice
 Disciplined and defined retirement planning and investment philosophy
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