Our relief after learning of the continuation of the existing tax regime on December 32nd (true, right?) is tempered by the recognition that $3.63 Trillion needs to be added to revenues in the coming decade to pay for the tax benefits we enjoy.  Obama’s estate and gift tax proposals in this area are still on the table, including: Elimination of the discounts on fractional gifts of business interests for “marketability”.  Marketability is the largest component by far in our discount planning, and this would be very painful.  Discounts for “lack of control”, also called the minority interest discount, would remain. Unification of the estate/gift and income tax regimes by terminating the use of Grantor Trusts-the foundation of many of our most treasured planning techniques; Limit […]

Forty Percent Estate, Gift, and GST Tax Rate The highest marginal FEDERAL estate and gift tax rate has increased from 35% to 40%-half way to the 45% originally promoted by the Obama Administration in its proposals over the last two years.  The 40 percent rate is the only change from 2012 federal transfer tax law. Note: Remember, for New Yorkers, the addition of NY Estate Taxes adds about 10% to the Federal rate, bringing aggregate estate taxes to a 50% level for taxable estates above the exemption amounts.  New York continues to have NO gift tax. The 40 percent Federal rate is reached at a taxable estate or cumulative gifts of $1 million. The 40 percent gift tax rate translates into a 28.57 percent tax-exclusive rate if […]

In the early morning hours of Jan. 1, 2013, the Senate, by a vote of 89-8, passed H.R.8, the “American Taxpayer Relief Act” (the Act). Late on that same day—hours after the government had technically gone over the “fiscal cliff”—the House of Representatives, by a vote of 257 to 167, also passed the bill. The Act, which the President is expect to quickly sign into law, would prevent many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire. However, it would also increase income taxes for some high-income individuals and slightly increase transfer tax rates. This article provides an overview of the Act’s key provisions. Highlights of the Act include […]

We await details, but the last minute deal includes a provision to continue the $5.12 million estate tax exemption-and (subject to confirmation) the $5.12 million lifetime gift tax exemption as well! Whether such amounts remain indexed to inflation is not yet clear.  The status of the Generation Skipping Transfer Tax Exemption is not yet known.  Like other legislative changes before it, modifications of the new law, if passed, will be anticipated via technical corrections and IRS rulings. Based on a quick assessment of our clients who engaged in planning and gifting to beat the fiscal cliff, we believe that: 1) year end gifts remain valuable to remove future appreciation in the value of gifted property from the estate tax; 2) until other technical provisions of […]

The Obama Victory increases the chances of success for his administration’s estate and gift tax proposals, highlighted in the last post.  This is a middle ground compromise between the horror of returning to 2001 Exemptions and Rates, and the generosity of the 2012 $5.12 million exemption and 35% rate. Huge uncertainty remains.  At this point, it appears that the administration is threatening to let the economy go over the fiscal cliff to force Republican cooperation, but neither camp will accept culpability.  The result is a potential stalemate until the spring, when the you know what hits the fan, and they take action (best bet is Obama’s proposal), and pass the law retroactively to December 31st.  Pure speculation, but something to chew on. Looking down the road […]

Estate, Gift, and GST Tax Parameters (thanks to David Lane) ____________________________________________________________________________________ Rule in Effect in 2012 Rule scheduled to go into effect after Dec 31, 2012 Rule proposed by Obama Administration (General Explanations of the Administration’s Revenue Proposals, so called “Green Book”) Highest Federal  estate tax   rate 35% 55% (plus 5% surtax between $10 andapprox. $17.2 Million) 45% Federal estate taxequivalent exemption $5,120,000 $1 Million $3.5 Million Portability of estate tax  equivalent exemption to     surviving spouse Yes No Yes Basis adjustment rule Date of Death(or AVD) Value Date of Death(or AVD) Value Not stated explicitly but appears to endorse Date of Death (or AVD)Value Highest Federal gifttax rate 35% 55% (plus 5% surtax between $10 andapprox.  $17.2 Million) 45% Federal gift tax equivalent  exemption $5,120,000 $1 Million $1 […]

Evaluation Services, Inc., an appraisal firm, conducted an August survey of its client attorneys.  Here is what they reported: In our August poll, none of our respondents expect any resolution before the election while 35% think an answer will be forthcoming between the election and end of the year.  65% believe Congress will not address this issue until 2013!

See below: the rates are hard to believe.  My first home mortgage was 11%! Applicable Federal Rates (AFR) for September 2012 Period for Compounding Annual Semiannual Quarterly Month Short-Term AFR .21% .21% .21% .21% 110% AFR .23% .23% .23% .23% 120% AFR .25% .25% .25% .25% 130% AFR .27% .27% .27% .27% Mid-Term AFR .84% .84% .84% .84% 110% AFR .92% .92% .92% .92% 120% AFR 1.01% 1.01% 1.01% 1.01% 130% AFR 1.09% 1.09% 1.09% 1.09% 150% AFR 1.26% 1.26% 1.26% 1.26% 175% AFR 1.48% 1.47% 1.47% 1.47% Long-Term AFR 2.18% 2.17% 2.16% 2.16% 110% AFR 2.40% 2.39% 2.38% 2.38% 120% AFR 2.62% 2.60% 2.59% 2.59% 130% AFR 2.84% 2.82% 2.81% 2.80%

Click on the link below, to find your bracket and liability.  Let’s hope it stays this way next year! 2012 Tax Tables, SLG