The American Tax Payer Relief Act of 2012 (ATRA) was enacted shortly after the year 2013 began to help us avoid falling off the “fiscal cliff.” ATRA was supposed to bring some stability in an ever changing wealth transfer environment. ATRA made “permanent” the gift and estate tax exemption amounts. ATRA made the estate and gift tax exemption $5 million (indexed for inflation) with a tax rate of 40% for every dollar over the exemption.
Not more than four months after ATRA was passed the President came out with his budget proposal for 2013. In that 2013 budget proposal he proposed a $3.5 million estate tax exemption. The President is at it again this year with a proposal of dropping, what was supposed to be permanent, the estate and gift tax exemptions. So what does permanent really mean to Congress? Perhaps the only thing permanent is change.
The latest proposed changes for transfer taxes include:
- Estate and Generation Skipping Transfer Tax exemptions are made “permanent” at $3.5 million, not indexed for inflation.
- The lifetime exclusion amount for gifts would be $1 million.
- The rate for the wealth transfer taxes would increase to 45% from 40%
- You would no longer be allowed to gift $14,000 per year to as many people as you want without having to worry about gift taxes. The max in any given year you could gift would be $50,000, regardless of the amount of people you gift to.
The chances of all of these being passed is pretty remote, but it is something to keep your eyes open for and stay in contact with your estate planning attorney to monitor what may happen to ever changing laws.
Contributed by MH Arrowhead, Scottsdale and Phoenix Estate Planning Attorney David T. Eastman.
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