ATRA 2013 sets $5 million Estate and Gift Tax Exemption
The American Taxpayer Relief Act (ATRA) enacted on January 2, 2013 answered the uncertainty of the “fiscal cliff” for estate and gift taxes. Without this legislation, the federal estate and gift tax exclusion amount would have reverted to $1,000,000 beginning in 2013.
Highlights of the New Act:
1. Exclusion amounts. The federal estate, gift and generation-skipping (GST) exclusion amounts are now set permanently at $5 million per taxpayer. This amount is indexed for inflation. For 2013, this means that individuals may hold assets of up to $5,250,000 and pay no estate tax upon death. Couples may own twice this amount.
2. Tax rate. The rate for estate, gift and GST taxes is 40%, up from 35%, for amounts above the $5 million exclusion.
3. Annual exclusion from gift tax. Due to inflation indexing, the annual tax-free gift limit also increased to $14,000 per donee. Taxpayers may now gift up to $14,000 to as many people as they wish each year without using up their unified credit or filing a gift tax return.
4. Portability extended. The executor of a deceased spouse may continue to transfer any unused portion of the deceased spouse’s $5 million-plus exclusion amount to the surviving spouse. Added to the survivor’s own exclusion, a portability election increases the opportunities for higher lifetime gifts or estate tax-free distributions at death.
5. Credit Shelter Trusts. Couples may still choose a two-trust plan to include provisions for children from a previous marriage, or for other asset protection.
6. GST planning. The $5 million exclusion makes dynasty trust planning for future generations very attractive.
7. Low interest rates. Today’s current low interest rates favor use of more sophisticated gifting techniques to reduce a taxable estate at a lower gift tax cost.
Unlike the 2001 Act which had a ten year “sunset,” the new exclusion amounts have no ending date and thus are “permanent.”
Now that we know the rules, clients should be more motivated to update their estate planning. For more information or to schedule a time to review your Trust and estate planning, please call our offices at 530-272-4292.