Estate Tax and the American Taxpayer Relief Act of 2012

January 2, 2013

After two years of countless articles, calculations, plans and revised plans to anticipate the reversion of the estate, gift and generation-skipping transfer tax to 2001 levels, the estate tax portion of the fiscal cliff ended not with a bang but with a whimper. The American Taxpayer Relief Act of 2012 (probably to be known as “ATRA”) made precisely two modifications to the existing estate tax law. First, the scheduled expiration of the current version of the estate tax law, which has been a feature of the law since it was changed in 2001, was repealed. For the first time in 12 years there is no scheduled date on which the estate tax law is supposed to change. Second, the maximum estate tax rate of 35% which applied during 2011 and 2012 was increased to 40% for 2013 and later years, in contrast to the 55% rate prior to 2001.

Nothing else changed.

To recap the law in existence over the last two years and which will stay for 2013 and beyond: The base estate tax exemption is $5,000,000 and a surviving spouse can elect to increase their exemption by the unused portion of their late spouse’s exemption, making the potential exemption for a married couple $10,000,000. Only estates worth more than this pay estate tax. The base gift tax and generation-skipping transfer tax exemptions are also $5,000,000. Many commentators thought the gift and GST exemptions would be reduced, and the retention of the current exemptions preserves some of the best planning opportunities for larger estates. The exemption for estate taxes, gift taxes and generation-skipping transfer taxes is indexed for inflation. For 2012 it was $5,120,000. Given the talk of comprehensive tax reform which could take place later this year, the permanence of the current estate tax law may not last, but the lack of any sunset date is welcome relief from the uncertainty which has been part of estate planning for over a decade. For many estate plans, the federal estate tax is no longer a concern. For larger estates, planning for estate taxes is still crucial and should be reviewed annually.

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For more information about "Estate Tax and the American Taxpayer Relief Act of 2012," contact Steven A. Brezinski at sbrezinski@axley.com or 608.283.6723.