May 17, 2013

"Permanent" estate tax, right? Um, maybe not

The American Taxpayer Relief Act provided just that - relief - to estate planners and clients when it was passed by Congress in January 2013. The so-called federal "fiscal cliff" legislation was hailed as putting to rest the uncertainty that has surrounded federal estate and gift taxes since the Bush tax cuts took effect over a decade ago. 

The Act set the unified federal estate tax and gift tax at $5 million per person, with annual adjustments for inflation (the current rate is $5.25 million). The law allowed married couples to double that exemption, and allowed survivors to use the deceased spouse's exemption, too ("portability").

We too breathed a sigh of relief when we reported the news back in January. But we also added this proviso:"Bear in mind that no legislation is indelible or unchangeable." That caution was underscored in April, with the release of President Obama's proposed budget for 2014. Under that proposal, the estate tax would revert in large part to its 2009 levels, as follows:
  • The federal estate tax exemption would decrease from its current level of $5.25 million indexed to inflation, to $3.5 million, not indexed to inflation. Obviously this would scoop up many currently nontaxable estates. 
  • The top estate tax rate would increase from 40% to 45%.  
  • The generation-skipping transfer tax exemption would revert to $1 million. 
  • The gift tax exemption would return to $1 million and there will no longer be a unified estate and gift tax exemption.
Like we said, when it comes to legislation, nothing is permanent -- except the possibility of change.  We will continue to keep you posted on any new developments.

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