American Taxpayer Relief Act of 2012: Estate, Gift, and GST Provisions

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law.  The Act contains the following estate, gift and generation skipping tax provisions:

  • The maximum rate for the estate, gift and generation-skipping transfer taxes is 40 percent. This represents an increase from the rate in 2012 (35 percent) but is less than the pre-2001 rate (55 percent).
  • The gift and estate tax exemption amounts remain unified with one another and are indexed for inflation from 2011. Although the Internal Revenue Service has not made an official announcement, it appears the unified exemption amount for lifetime gifts and decedents’ estates in 2013 is $5.25 million.
  • The exemption amount for the generation-skipping transfer tax remains the same and is indexed for inflation from 2011 as well. Accordingly, despite no official announcement from the Internal Revenue Service, the exemption amount in 2013 for generation-skipping transfers appears to be $5.25 million also.
  • The unused unified exemption amount of a predeceased spouse may continue to be used by the surviving spouse for gift tax purposes and by the surviving spouse’s personal representative for estate tax purposes, provided a proper portability election was made at the death of the predeceased spouse.
  • The Act did not, however, address previous proposals to limit the advantages of grantor trusts, make 10 years the minimum term of grantor retained annuity trusts and narrow the availability of valuation discounts. Although there has been no meaningful discussion about if or when these proposals will be considered by Congress, they should be borne in mind as a possibility and may be reason to consider estate planning in 2013. Nonetheless, the Act, with its certainty, provides a welcome change from the last few years.