On New Year’s Day 2013, President Obama signed the American Taxpayer Relief Act. This act includes many changes to the Internal Revenue Code to at least temporarily resolve the “fiscal cliff” issues which have received so much publicity over past few months.  Although many provisions of the tax act deal with marginal income tax rates and the alternative minimum tax, it is the estate tax and gift tax implications of the Act are of most significance to people interested in estate and tax planning
 
            This Tax Act made the 2012 laws permanent with only a few important changes.  Congress retained the $5,120,000 estate, gift tax and gift and generation-skipping transfer (GST) tax exemption and adjusted it for inflation. This means for 2013, the exemption amount will be $5,250,000, an increase over the 2012 exemption.  However, the tax rate on estate, gifts and GST transfers above the exemption amount was increased to 40% from the 35% rate that was in effect in 2012.
           
            In addition, the Tax Act made “portability” rules — rules that simplify the use of estate and gift tax exemptions for married clients —permanent. (These portability rules had been scheduled to expire in 2013.) Because portability is an important option for many clients, estate practitioners were pleased to see that provision in the Act.
 
            Although Congress and the President have called many of the changes in the Tax Act “permanent”, it is still somewhat unclear whether or when these taxes will be again be revised.  These issues may arise when lawmakers in Washington negotiate the federal debt limit and deficit. As a result, it is difficult to predict how permanent these “permanent” changes really will be. 
 
            Many clients may have postponed reviewing their estate plan pending some guidance on the direction the estate tax laws were headed.  Now is a good time to go ahead and review your planning.  Some individuals who did not proceed with gifts in 2012 may wish to re-evaluate the advantage of making gifts in 2013.  It is important to note that, separate and apart from the new Tax Act, Congress increased the annual exclusion gift amount from $13,000 in 2012, per donee, to $14,000 per donee in 2013.  This amount is the maximum that any individual can give to a beneficiary in a calendar year without using up any gift tax exemption or paying any gift tax.
 
Please contact us at Lamb McErlane to review your estate plan in light of these changes.  We look forward to working with you and accomplishing your estate planning goals. 
West Chester Office – 610-430-8000 / Bryn Mawr Office – 610-527-9200