The American Taxpayer Relief Act of 2012 (the “Act”), enacted January 2, 2013, has brought some welcome permanency to estate, gift and generation-skipping transfer planning.
The Act permanently set the gift and estate tax exclusion amount at $5 million, indexed for inflation after 2011. While the Act made these changes “permanent,” it should be noted that they will be permanent only as long as Congress does not make further changes. After indexing is taken into account, the exclusion amount for 2013 is estimated to be $5,250,000. Gifts or estates exceeding the exclusion amount are subject to a graduated tax regime with a 40% maximum rate. This means that in 2013, and in future years, you can transfer either during life or at death a total of $5,250,000, or the inflation adjusted amount in years after 2013, without incurring any gift or estate tax. Amounts above the exclusion amount will be subject to a tax rate of 40%.