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January 3, 2013


Finally, on January 1, 2013, the Senate and the House passed the "American Taxpayer Relief Act" (the "Act") to give taxpayers some certainty regarding income taxes and transfer taxes (gift, estate, and generation-skipping transfer taxes). Although the government technically went over the "fiscal cliff" (the name given to the expiration of the Bush era tax cuts), the passage of the Act will negate the adverse impact that the fiscal cliff would have had on most American taxpayers. It is anticipated that President Obama will soon sign the Act into law.


The Act will prevent some scheduled tax increases from taking effect and will retain many favorable tax breaks that would otherwise have expired on January 1, 2013. In addition, the Act will increase income taxes for those earning more than $400,000 ($450,000 for married taxpayers, $425,000 for head of household), and will increase the estate, gift, and generation-skipping tax rates from 35% to 40%.


The Act is good news for estate planning. It prevents the reduction of the transfer tax exemptions to $1,000,000, and instead permanently retains the exemptions at $5,000,000, indexed for inflation. In 2012, the exemptions for gift, estate, and generation-skipping taxes were each $5,120,000. These amounts will increase to $5,250,000 or greater for 2013.


Portability of a spouse's unused exemption amount has been made permanent, so that a husband and wife together can exempt a total of $10,000,000 (indexed for inflation) from transfer taxes.


On another note, and unrelated to the Act, the gift tax annual exclusion amount has increased from $13,000 to $14,000 for 2013.


In summary, in connection with transfer taxes, the 2012 rules have been retained. The only change is the increase in the tax rate from 35% to 40% on taxable gifts, estates and generation skipping transfers.

Trusts and Estates Group

Mirick O'Connell

100 Front Street

Worcester, MA  01608

t 508.791.8500

f 508.791.8502


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Westborough, MA  01581

t 508.898.1501

f 508.898.1502


Mirick O'Connell is a full-service law firm with offices in Worcester, Westborough and Boston, Massachusetts.  The Firm's principal practice groups include Business; Creditors' Rights, Bankruptcy and Reorganization; Elder Law; Family Law and Divorce; Intellectual Property; Labor, Employment and Employee Benefits; Land Use and Environmental Law; Litigation; Personal Injury; Public and Municipal Law; and Trusts and Estates.
This client alert is intended to inform you of developments in the law and to provide information of general interest.  It is not intended to constitute legal advice regarding a client's specific legal issues and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.