A question we are sometimes asked is, "What impact did The American Taxpayer Relief Act of 2012 have on estate and gift tax rules?" It's a good question. Let's talk about it.
Under the 2001 Tax Act the estate tax exemption slowly increased over a period of 10 years from $1,000,000 to $3,500,000. In 2010 Congress amended the estate and gift tax law to increase the exemption amount to $5,000,000. The 2012 Tax Act, passed and signed in January of 2013, has made permanent the 2010 law change and added a provision to index the exemption amount for inflation. For 2013 the estate tax exemption amount will be $5,250,000.
Under prior law, any unused exemption amount that one spouse used was not available for another spouse to utilize to offset their estate. The 2010 Tax Act added a provision that made the exemption amount portable, and therefore allowing any unused portion of an estate tax exemption not utilized by a taxpayer available to their spouse. This law change was made permanent by the 2012 Tax Act.
The tax rate on estates has been lowered from a maximum rate of 60% in 2001 to 45% in 2009. The 2010 Tax Act lowered the maximum rate to 35% for estates in 2010, 2011 and 2012. The 2012 Tax Act increased and made permanent a maximum estate tax rate of 40% for estates beginning in 2013.
Under prior law for years between 2001 and 2009, a taxpayer could gift up to $1,000,000 of their estate away, in excess of the annual gift allowance, without incurring any tax during their lifetime. The 2010 Tax Act unified the gift tax allowance with the estate tax exemption. Therefore, beginning in 2010 and beyond, a taxpayer can gift away amounts in excess of the annual gift allowance, without incurring any tax during their lifetime. For 2013, this amount will be $5,250,000.00.
If you have questions about this, feel free to comment below or if you would like to speak with one of our CPAs about how this will specifically effect your taxes, fill out this brief form to schedule a complimentary accounting consultation.