The American Taxpayer Relief Act of 2012, passed by Congress in the final hours of 2012 and signed by President Obama on January 1, 2013, includes significant estate and gift tax law.
Among its many tax provisions, the 2012 Act makes permanent the $5,000,000 gift, estate, and GST tax exemption amount that was temporary for 2011 and 2012. The $5,000,000 will be adjusted for inflation going forward, although the IRS has not yet issued any official guidance for the inflation adjustment for 2013. Best guess puts the inflation-adjusted amount in 2013 at approximately $5.25 million per person. For married couples in 2013, the aggregate exemption will be twice this amount (approximately $10.5 million). The estate tax rate, as provided in the 2012 Act, is a flat 40% tax rate for any transfers in 2013 and future years that exceed the $5.25 million gift, estate, or GST exemption amount.
Notably, the 2012 Act also makes permanent the "portability" concept whereby the unused estate tax exemption amount of the first spouse to die can be passed to the surviving spouse for later use by the surviving spouse (either during life or at death). For example, if the first spouse passes away in 2013 with $2.25 million of assets, that deceased first spouse will have a $3 million "unused estate tax exemption amount," which can be passed to the surviving spouse. This would give the surviving spouse a total of $8.25 million of gift and estate tax exemption going forward, subject to further limitation if a later marriage occurs.
The annual gift tax exclusion for 2013 is $14,000 per donee. For married couples, the annual gift exclusion is now double this amount - $28,000.
After many years of temporary patches, Congress has made these estate tax laws permanent, allowing families a greater peace of mind when planning for the transfer of assets at during lifetime and at death.
To read the American Taxpayer Relief Act of 2012 click here. Discussion of the the estate tax begins on page 11.