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January 24, 2013

The American Taxpayer Relief Act of 2012

On behalf of Thomas Costello of Costello Law Group

Earlier this month, Congress passed the American Taxpayer Relief Act of 2012 which extends many of the Bush-era tax cuts and provides some much needed stability to the federal estate, gift and generation-skipping transfer tax law. Below is a brief synopsis of the current federal estate and gift tax law:

  • The lifetime exemption for estate, gift and generation-skipping transfer taxes remains at $5 million per individual adjusted for inflation. The 2013 inflation adjustment is $5.25 million.
  • The 2012 Act preserves the “portability” of the lifetime exemption so that a surviving spouse may use the unused portion of his or her deceased spouse’s lifetime exemption. This means that a married couple may potentially exempt over $10 million dollars.
  • The annual exclusion for gifts that may be made to one person without using any of the lifetime exemption has risen to $14,000 in 2013.
  • The 2012 Act provides for a flat 40% tax rate for transfers in excess of the lifetime exemption. This is an increase from the 35% tax rate in 2011 and 2012.

One of the most important aspects of the 2012 Act is the absence of “sunset” provisions. Unlike the Economic Growth and Tax Relief Reconciliation Act of 2001 and Tax Relief Act of 2010, the 2012 Act is not set to expire on a certain date. Although tax laws are always subject to change, the absence of a “sunset provision” in the 2012 Act provides practitioners and their clients with greater certainty.