Early last week, President Obama released the General Expectations of the Administration’s Fiscal Year 2013 Revenue Proposals, which outlines potential tax changes and is otherwise known as the ‘Green Book.’  This year many estate and transfer tax provisions were specifically mentioned.  As you may be aware, the current estate tax laws are set to revert back to tax year 2001 rates on December 31, 2012.  Current laws provide an estate tax exemption of $5.12 million and a top tax rate of 35%.  In 2013, the law would permit an estate tax exemption of only $1 million and a tax rate of 55% for transfers above the exemption unless Congress takes action before the end of this year.  Clearly, this is a significant change and it is not surprising the Green Book incorporates a revision to the estate and transfer tax rules.

However, some of the other modified estate and gift tax provisions outlined in the Green Book are a little more surprising.  Below is a quick summary of those provisions along with the suggested change to the 2013 estate tax exemption and top tax rates.

• Restoration of the Estate, gift, and generation-skipping transfer tax parameters in effect in 2009
o The estate tax exemption would therefore be $3.5 million with a top tax rate of 45%
o The lifetime gift tax exemption would be $1 million
o These provisions would be made permanent.
o Also, there is a provision to make the portability of unused estate exemption permanent.
• Requirement for consistency in value and basis figures reported for transfer tax purposes to the IRS and those inheriting property
• Modification of rules by increasing restrictions on valuation discounts
• Requirement for a minimum term of 10 years for grantor retained annuity trusts (GRATs)
• Limited duration of generation-skipping transfer (GST) tax exemption to a trust’s 90th anniversary (limitation on dynasty trusts)
• Coordination between certain income and transfer tax rules applicable to grantor trusts providing potential for inclusion in the grantor’s estate
• Extension of the lien on estate tax deferrals for certain closely held businesses

For more information about the modified estate and gift tax provisions mentioned above, reasons for the changes and for a public copy of the entire Green Book, please see: released documents

Since these are only proposed changes, please stay tuned as we will update you as changes to the estate and trust provisions are incorporated for years beginning after 2012.

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