Fiscal Cliff Averted: Estate and Transfer Tax Certainty

Posting by Billy Thomas

By now it is no secret; we have been saved from tumbling off the ‘Fiscal Cliff’ after Congress and the President passed the American Taxpayer Relief Act of 2012.  Granted, the legislation came right down to the wire before an affirmative vote.  We are now entering a time of increased certainty with respect to U.S. transfer taxes (estate, gift, generation-skipping transfer, etc.).

There are three main provisions from the American Taxpayer Relief Act of 2012 for Estate and Gift transfer taxes:
1.    The estate, gift and GST tax exemption is set at $5.25 million per individual for 2013.  In other words, a married couple can potentially transfer $10.5 million estate tax free to friends and family.  This exemption will continuously be indexed for inflation going forward, as well.
2.    The portability tax election, a mechanism for married couples to transfer up to the full $10.5 million, has also been made permanent.  In general, the first spouse to die can transfer any unused estate tax exemption to the living spouse to use upon his or her death.
3.    Finally, the estate, gift and GST tax rate has increased from 35% to 40%.  While this is a tax increase, it is still favorable to the rate schedule that may have existed if the Act had not been passed.

In addition, there is one other important item of note related to estate, gift and GST taxes.  The annual gift tax exclusion for 2013 is $14,000.  While this is not a specific provision of the new Act, it should be taken into consideration when making gifts during the year.

Keeping current on all these new laws and their implications can be ‘taxing.’  Be sure to subscribe to our blog to get all the latest details.

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