Since Congress passed the American Taxpayer Relief Act of 2012 late into the night of January 1, 2013 (a little late, but it got done) and the President signed it into law on January 2nd there has been wide spread coverage of the changes to Federal transfer tax laws. Here is a brief summary of the Federal Estate and Gift tax rules made “permanent” by the Act:
- The Federal Estate, Gift, and Generation-skipping Tax exemptions were set at $5,000,000, indexed for inflation. The 2013 exemption is $5,250,000
- The tax rate for transfers beyond the exemptions is 40%
- The portability of a taxpayer’s exemption to a surviving spouse remains under 2012 rules.
- Credit for state death taxes set to be revived in 2013 was eliminated.
Technically, we did fall off the cliff, but it was a short fall and there was a trampoline at the bottom to spring us back up to the edge. But with political battles looming over spending cuts and the federal debt limit, our footing on the cliff is still tenuous. President Obama and the Democrats in Congress have already called for additional revenue as part of a deal on the sequester and debt-limit, while the Republicans have declared taxes to be “off the table”. While we do not face an automatic reversion to old laws as we faced at the end of the year, transfer taxes could be targeted for some of that additional revenue. In the past, there have been attempts to limit the availability of various estate planning techniques, such as grantor retained annuity trusts (GRATs) and valuation discounts for minority holdings and lack of marketability. For now, it is probably best to wait and see how Congress and the President handle the next few months. We appear to have certainty (finally) for the Federal Estate, Gift, and Generation-skipping Taxes, but “permanency” should probably be taken with a grain of salt for now.