American Taxpayer Relief Act of 2012
After months of negotiating, Congress and the President finally reached an agreement regarding income taxes and Federal spending. The new laws are contained in a bill known as the "American Taxpayer Relief Act of 2012" (the "2012 Tax Act"). The 2012 Tax Act also addressed estate, gift, and generation skipping transfer taxes which are listed below.
First, the 2012 Tax Act increased the estate tax exemption to $5,250,000 per person, and in addition, the exemption is indexed for inflation and will increase each year in the future.
Second, the 2012 Tax Act increased rate of estate tax to 40% from 35% last year.
Third, the available lifetime exemption from both of the gift tax and generation skipping transfer ("GST") tax has also increased to $5,250,000 per person.
Fourth, the 2012 Tax Act made "portability" a permanent part of the estate tax system. Portability is a way for married taxpayers to save taxes. Now when a spouse leaves property directly to the surviving spouse, the surviving spouse can add the unused portion of the deceased spouse's $5,250,000 exemption to his or her own $5,250,000 exemption, thereby potentially doubling the amount that can be given away during lifetime or left tax-free at death.
Fifth, the gift tax annual exclusion, which is the amount that can be given away each year without using up any part of one's lifetime exemption, is now equal to $14,000, up from $13,000 last year.
With such large exemptions now available, there are far more planning options available to people who want to make gifts while they are alive, whether in trust or outright to their children or others. In light of the changes brought about by the 2012 Tax Act, it is my recommendation that we meet to review your estate plan to determine if changes are needed. If you are interested in such a consultation, please call my office to schedule a time that is convenient for you.
