This post reviews the impact of recent legislation on estate, gift and generation-skipping transfer planning. The American Taxpayer Relief Act of 2012 (ATRA), signed into law January 2, 2013, has brought some welcome permanency to such planning.
ATRA made permanent the unification of the estate, gift, and generation-skipping tax rate structure including making permanent the basic exclusion amount — the amount a taxpayer may transfer without incurring estate or gift taxes — at $5,000,000, adjusted for inflation. The value of a person’s estate and/or lifetime gifts exceeding the basic exclusion amount is subject to a maximum estate and gift tax rate of 40%. Also, the generation-skipping transfer (GST) exemption is $5,000,000, adjusted for inflation. The maximum GST tax rate also is 40%. As adjusted for inflation, the basic exclusion and exemption amounts were $5,120,000 for 2012, and is $5,250,000 for 2013.
ATRA also set the income tax rates that apply to estates and trusts at 15%, 25%, 28%, 33% and 39.6% for taxable years beginning after 2012.
Further, ATRA also made permanent the so-called “portability” provision. If a spouse dies after 2011 without exhausting his or her basic exclusion amount, the surviving spouse may be able to gift against that amount. This latter provision does not apply to gifts given to grandchildren, i.e., generation-skipping transfers.
Finally, ATRA made permanent the deduction for state estate taxes, the repeal of the qualified family-owned business interest deduction and certain conservation easement rules.
If you have any questions regarding this legislation or what it means to you, please click here to contact Paul.