2013 Estate Tax Update
On January 1, 2013, Congress signed H.R. 8, American Tax Payer Relief Act of 2012 (ATPA), thereby averting the so-called “Fiscal Cliff” and giving us a somewhat modified tax scheme moving forward. While the provisions affecting the areas of estate and gift tax do not offer a great deal of change for 2013, they do provide a degree of permanence, which is a welcome reprieve from the ad hoc manner in which Washington had recently been conducting business.
H.R. 8 essentially makes permanent the EGTRRA of 2001 and the TRA of 2010. http://www.forbes.com/sites/deborahljacobs/2013/01/09/a-married-couples-guide-to-estate-planning/. The previous laws allowed for an individual to gift or bequeath up to $5.12 million ($10.24 million for married couples). The ATPA keeps the $5.12 million credit amount and indexes it for inflation. As a result, individuals that had previously bumped up against the exemption amount (via a gifting program) will have at least a little bit of room added to their lifetime credit. Similarly, the annual gift tax exclusion amount was increased to $14,000 for 2013.
Perhaps more importantly for high net worth married couples, the “portability” provisions of the previous tax schemes were made permanent. http://www.forbes.com/sites/hanisarji/2013/01/06/more-estate-tax-changes-could-follow-fiscal-cliff-deal/. What this means is that for any individual who dies after 2011, his or her widow/widower can add any unused credit to their $5.12 million tax-free amount. However, it is important to remember that utilizing the portability provisions is not an automatic undertaking. The executor handling the first-to-die’s estate must file an estate tax return within nine months after death (there’s a six month extension allowed), or the exemption is lost. Filing an estate tax return is necessary even if there is no estate tax owing on the first estate.
Finally, the generation skipping tax (GST) credit remains at $5.12 million. There is no portability of the GST credit between spouses.
As previously mentioned, the ATPA offers a degree of permanence for this area of the tax code as there are no “sunset” provisions included in the law. Therefore, the ATPA is the law of the land, at least until Congress changes it again.