January 2013

On New Year’s Day 2013, Congress passed “The American Taxpayer Relief Act of 2012,” (the “Act”) which President Obama signed into law on January 2nd.  As many taxpayers were aware, the absence of action on Congress’ part could have meant the reversion of the 2012 estate, gift and generation-skipping transfer (GST) tax exemptions of over $5 million, and a maximum tax rate of 35%, to exemptions of $1 million, with a maximum tax rate of 55%.

The Act provides as follows:

  • Exemption Level:  The estate, gift, and GST tax exemptions are set at $5 million, indexed for inflation.  The inflation-adjusted exemptions for 2013 are $5.25 million.
  • Tax Rate: The top gift and estate tax rate now stands at 40%, a slight increase from the 35% rate in effect in 2012.  The GST rate is now 40%.
  • Portability: A surviving spouse may add the unused exemption of the first spouse to die to the surviving spouse’s own available exemption.  In order to preserve any unused exemption, a portability election must be made on a federal estate tax return upon the first spouse’s death.

Unlike prior laws, the Act is permanent, and is not automatically scheduled to adjust or sunset unless and until Congress changes the new rules.

Keep in mind that the Act does not alter the current Massachusetts exemption or rate.  The Massachusetts estate tax exemption remains at $1 million, with a maximum rate of 16%.

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