At the very last minute, the American Taxpayer Relief Act (“ATRA”) was signed into law by President Obama on January 2, 2013. The law basically makes permanent the 2010 temporary rules regarding federal estate taxes, gift taxes and generation-skipping taxes.
How Does It Work?
Under ATRA, the federal estate tax exemption is $5.25 million for 2013 and will be indexed for inflation going forward. The top estate tax has increased from 35% to 40% on those estates that exceed the exemption amount. The lifetime gift tax exemption and the generation-skipping tax exemption are also $5.25 million for 2013 and both will also be indexed for inflation.
The Fine Print
ATRA also makes permanent the “portability” of the federal estate tax exemption for married couples. This means that in 2013, a married couple can pass on a total of $10.5 million to their heirs, free from all federal estate taxes. PLEASE NOTE that the surviving spouse will be required to file with the IRS in order take advantage of a deceased spouse’s unused estate tax exemption. If the IRS form is not filed, the unused exemption will be lost. Also PLEASE NOTE that the generation-skipping tax exemption is NOT portable.
Questions? If you are confused about how these changes affect your estate plan, please feel free to contact us.