The American Taxpayer Relief Act 2012

Many of the Bush-era tax cuts and previously lapsed tax provisions were made permanent under the American Tax Relief Act 2012 (ATRA) came into effect. The $5 million exemption was permanently implemented — coupled with an inflation adjustment and a portability election. This sets the 2013 estate tax exemption at $5.25 million and Congress implemented a new 40% estate tax rate.

Further, the ATRA extends the portability provision which allows a surviving spouse to claim a deceased spouse’s unused federal exclusion amount. This means for a married couple, with proper planning, they will be able to pass $10.5 million to their beneficiaries without a gift or estate tax. To receive this benefit the surviving spouse must make an election on a federal tax return Form 706 at the death of his or her spouse to claim their deceased spouse’s credit. This election gives the surviving spouse the ability to increase the amount he or she that can pass free of federal estate tax.

The ATRA increased the annual gift exclusion to $14,000. This means someone may gift up to $14,000 in 2013 without paying any gift tax or fulfill any special reporting requirements to the IRS. Simply put, the annual gift tax exemption is an estate planning tool you can utilize that will enable you to make estate gifts prior to death.

It is important to review your estate plan to insure the provisions of the new law are incorporated into your estate plan; there are obvious effects from the delayed implementation and various provisions of the ATRA. To discuss how this new law affects you, contact the attorneys and staff of the M.H. Lawrence, PC law firm.