Estate and Gift Taxes Under the Act

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 the donor survives for three years after the gift.

Unified Exemption

The exemption remains at $5 million, indexed for inflation since 2011, which places it at $5.25 million for gifts made in 2013 and the estates of decedents dying in 2013.  This applies to Estate, Gift, and Generation Skipping Transfer Tax Exemptions

Portability

The Act of 2012 makes portability permanent.  Accordingly, we continue to be able to use the exemptions under special rules for married decedents who have not engaged in planning but who deserve nonetheless to utilize the exemptions.  It remains much more beneficial to engage in planning with trusts, for many reasons, anyway.

Previous Technical Corrections

Corrections and adjustments to the 2001 tax law on which our current law is based, remain in effect.  These were generally beneficial for taxpayers, and included automatic allocation of the GST Exemption.

The Will Doctor will have further comments and analysis in coming days and weeks.

Posted in Status of Tax Legislation, WillPlan Blog.

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