In the estate tax realm the only constant is change.  However, the change has maintained most of the status quo.  The “Fiscal Cliff Fix” passed on New Years Day makes permanent most of the estate and gift tax benefits that taxpayers believed would disappear when the Bush era tax breaks ended.  Although Congress dubbed the bill a “quick fix” and a “partial deal,” Congress may not revisit the estate and gift tax issues anytime soon because of the myriad of issues facing lawmakers.  A summary of key provisions are as follows:

  • The estate, gift and generation skipping transfer tax exemptions remain at $5 million ($5.25 million when indexed with inflation).  This, especially the gift exemption, was not expected.
  • The marginal rate for the estate tax has risen from 35% to 40%.
  • Permanent extension for the AMT patch, and favorable long term capital gains and qualified dividend rates continue for those couples earning less than $450,000.
  • A window during which IRA distributions given to charity (up to $100,000) can receive the 100% deduction and are not limited to one half of AGI.  There is a special rule for distributions that were made in December of 2012.  The following link is to a nice, short and sweet article on the subject.
  • Ordinary income tax rates have risen for married couples earning over $450,000 and deduction phaseouts trigger for married couples earning over $300,000.
  • The “Obamacare” surcharge remains unaffected.

What was not in the new law is of great significance.  Planning techniques such as the use of grantor trusts, GRATs, QPRTs, and valuation discounts were not mentioned.  On many occasions, the President had vowed to reduce the effectiveness of these techniques or to do away with them altogether.  Read the full version of H.B. 8 at this link