Estate, Trust & Tax Attorneys

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Westlake Village, California 91362
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Date:     January 8, 2013
Re:        Estate Tax Update

The Legislation to avoid the “fiscal cliff”, which is known as the American Taxpayer Relief Act of 2012, has been signed into law.  With regard to the estate tax, it is good news.  The estate and gift tax laws will remain unchanged, with the exception that the maximum tax rate is increased from 35% to 40%. 

In summary, here is how the law stands for 2013 and going forward:

1.         The estate tax exemption, gift tax exemption, and generation skipping tax exemption remain at $5 million, indexed for inflation.  The 2012 indexed exemption was $5,120,000, and it will be increased again for 2013.  The amount of the increased exemption will be known in late January.  This means that a single individual can either gift during lifetime or pass tax free at death at least $5,120,000 of assets.  Any amount in excess of $5,120,000 will be taxed at 40%.  For a married couple, this means an exemption of at least $10,240,000. 

2.         The concept of “portability” is retained.  This means that when one spouse dies, if his or her estate does not fully utilize the $5.12 million estate tax exemption, any remaining exemption will be available for use in the surviving spouse’s estate.  There are specific requirements to be eligible for portability, including the filing of an estate tax return for the first spouse’s estate. 

3.         The stepped up cost basis remains so that upon death any appreciated assets get a new cost basis based on the date of death value of the asset. 

4.         The ability to discount assets owned within family businesses, including family corporations, family limited partnerships, and family limited liability companies remains unchanged. 

5.         The ability to gift, sell or otherwise transfer assets to intentionally defective irrevocable trusts without triggering any capital gains tax remains unchanged.

The law is now “permanent” which means it does not have any fixed expiration date.  However, as with any law, it can be changed in the future by Congressional action but, absent such action, this will be the law for the foreseeable future. 

In short, these legislative changes are a positive development and avoided the estate and gift tax exemption reverting to $1 million.                   

Should you have any questions, please feel free to contact my office.



J. Peter Wakeman, Esq.