Wednesday, April 25, 2012

Estate and Gift Tax Changes Scheduled for 2013

Late in 2010, President Obama signed into law The Tax Relief, Unemployment InsuranceReauthorization, and Job Creation Act of 2010 (the “2010 Tax Act”) providing significant changes to the tax laws.  This Act contained significant new transfer tax (estate and gift tax) provisions and also extended the so-called Bush tax cuts both of which are set to sunset at the end of 2012.
 

Estate Tax


2012
2013 and beyond
Top Estate Tax Rate
35%
55%
Estate Tax Exemption
$5,120,000
$1,000,000
Portability of Estate Tax Exemption
Yes
No
Top Gift Tax Rate
35%
55%
Gift Tax Exemption
$5,120,000
$1,000,000
Gift Tax Annual Exclusion
$13,000
$13,000, subject to inflation adjustment
GST Tax Rate
35%
55%
GST Tax Exemption
$5,120,000
$1.4 million (approximately)



















For 2012, the 2010 Tax Act provides for an estate tax exemption of $5.12 million (increased from the 2011 exemption of $5 million due to a cost of living adjustment) and a top tax rate of 35%.  Portability of the estate tax exemption will continue for 2012.  Portability allows for the unused estate tax exemption of a deceased spouse to be transferred to and used by the surviving spouse.  In 2013, the estate tax is scheduled to revert to an exemption of $1 million with a top marginal rate of 55% (with an additional surtax of 5% for estates between $10 million and approximately $17 million), and portability will expire.
 

Gift Tax
 
For 2012, the gift tax exemption and top rate are unified with the estate tax.  Accordingly, the exemption is $5.12 million and the top rate is 35%.  The gift tax annual exclusion remains at $13,000.  For 2013, the gift tax, like the estate tax, is scheduled to revert to an exemption of $1 million and a top rate of 55% (and a similar 5% surtax on certain gifts).  

Generation-Skipping Transfer Tax

For 2012, the GST exemption is the same as the estate exemption, which is $5.12 million.  The GST tax rate, which is the maximum estate tax rate, is 35%.  For 2013, the GST exemption is scheduled to revert to approximately $1.39 million, adjusted for inflation, with a rate of 55%.

Plan Now?

With the understanding that the estate, gift, and generation-skipping tax is ever changing, many clients inquire as to what we anticipate to expect the exemption and tax rate will be in future years.  The answer to that question is very difficult to speculate upon.  For example, many estate planners never would have guessed that they would see the favorable estate and gift tax laws of 2011 and 2012.  President Obama’s proposed budget supports a $3.5 million exemption and a tax rate of 45%.  Republican presidential candidates are in favor of fully repealing the estate tax altogether.  There are those in Congress that see the current tax laws as effective as currently enacted and thus advocating no future changes. 

 
With all this uncertainty for the future in consideration, what we do know is that the current tax laws afford the wise and prudent client a generous exemption that may be carefully implemented in various planning techniques to meet the needs and goals of said client.  We at Jeffrey Burr are experienced in implementing various planning techniques to optimize a person’s gift and estate tax exemption.  We strongly urge our clients whom have concerns regarding the state of the estate and gift tax to immediately schedule an appointment with our firm to explore the options available to them.

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