Permanent Estate Tax Relief

/ January 3, 2013

SavingsCongress passed The American Taxpayer Relief Act of 2012 on January 1, 2013.  Among its many provisions are the following pertaining to estate taxes:

 Permanent estate, gift and generation skipping transfer tax relief

The EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) phased-out the estate and generation-skipping transfer taxes and fully repealed them in 2010.  It lowered the gift tax rate to 35% and increased the gift tax exemption to $1 million for 2010.  In 2010, the TRUIRJCA (Tax Relief Unemployment Insurance Reauthorization and Job Creation Act) introduced a two year patch, through 2012, setting the estate tax exemption at $5 million per person and the top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes.  The exemption amount was indexed for inflation beginning in 2012.  The 2012 bill makes permanent the indexed TRUIRJCA exclusion amount and indexes that amount for inflation going forward.  The top tax rate is set at 40% for estates of decedents dying after December 31, 2012.

 Portability of unused exemption

The TRUIRJCA allowed the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse for estates of decedents dying after December 31, 2010 and before December 31 2012.   The 2012 bill makes permanent this provision and is effective for estates for decedents dying after December 31, 2012.

Reunification

Prior to the EGTRRA, the estate and gift taxes were unified.  That single lifetime exemption could be used for gifts and/or bequests.  The EGTRRA decoupled these systems.  The TRUIRJCA reunified the estate and gift taxes.  The 2012 bill permanently extends unification and is effective for gifts made after December 31, 2012.

3 thoughts on “Permanent Estate Tax Relief

    1. There are many reasons to have an estate plan, taxes is only one of them. In fact, the majority of reasons people implement an estate plan have nothing to do with taxes. Instead, they have to do with issues such as guardianship of minors, protection of property for minors or those under legal incapacity, controlling where your assets pass and who will act on your behalf, and avoiding probate.

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