Federal Estate & Gift Tax... Congress Answers

There has been much talk over the last few months on the "expiration date"  of exemptions pertaining to federal estate taxes, gift taxes and generation skipping transfer taxes created under Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act ("TRUIRJCA" or "TRA 2010" for short) that was enacted in December 2010. 

After much debate, the American Taxpayer Relief Act ("ATRA" for short) was signed into law by President Obama on January 2, 2013. This new law makes the changes made by TRA 2010 permanent with regard to federal estate taxes, gift taxes and generation skipping transfer taxes.

Below you will find a summary of the 2013 Changes:

1. New and more favorable exemptions on estate tax, gift tax and generation-skipping transfer taxes. ATRA set the lifetime gift and estate tax exemption at $5 million per person, with annual adjustments for inflation.  Married couples may combine their exemptions to allow for double that amount.  The 2012 federal estate tax exemption rate of $5.12 million increased to $5.25 million for 2013. 

2. Less favorable top tax rates. The Estate Tax Rate increased from 35% to 40% on taxable estates (estates valued over $5.25 million). 

3. Portability of the federal estate tax exemption between married couple now permanent. A married couple can pass on $10.5 million to their heirs free from federal estate taxes. Note, however, that even if the deceased spouse's estate will not be taxable (in other words, is valued less than $5.25 million), the surviving spouse will nonetheless be required to file IRS Form 706, United States United States Estate (and Generation-Skipping Transfer) Tax Return, in order to take advantage of the deceased spouse's unused estate tax exemption, otherwise the deceased spouse's exemption will be lost.