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RESCUED FROM THE FISCAL CLIFF โ€“ ESATE AND GIFT TAX HIGHLIGHTS OF THE AMERICAN TAXPAYER RELIEF ACT OF 2013

By: Angela B. Kosar, Esq.

Approximately two years ago, President Obama passed sweeping tax changes through the Taxpayer Relief Act of 2010, known then in shorthand as TRA 2010. TRA 2010 contained significant and beneficial changes to the Federal Estate, Gift and Generation Skipping Transfer taxes that had already set in place through the 2001 Bush tax changes, known as the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). However, TRA 2010 was set to expire on December 31, 2012, along with the 2001 EGTRRA tax changes. As that 2012 deadline approached, the expiration of both of these tax acts threatened to push Americans over the “Fiscal Cliff”. As a sort of preliminary rescue maneuver, President Obama signed the American Taxpayer Relief Act on January 2, 2013 (referred to ATRA 2013).

Significantly, what ATRA 2013 in the Estate and Gift Tax area did was make permanent the EGTRRA and TRA 2010 tax changes. Here are the Estate and Gift Tax highlights of ATRA 2013:

1. The Federal Estate Tax (FET) exemption of $5Million from TRA 2010 is permanent and indexed for inflation. FET for 2013 is $5.12Million per individual, or a full $10.24Million for married couples.

2. The Federal Gift Tax (FGT) exemption remains unified with the FET, and is permanent at $5Million. It is also indexed for inflation. Like the FET, FGT will set at $5.12Million for 2013.

3. The Generation Skipping Transfer tax (GST) exemption, which is commonly applicable to transfers made directly to grandchildren or anyone else 37 ½ years younger than the transferor, is also permanent at $5Million, and is also indexed for inflation. Like the FET and FGT, GST will also set at $5.12Million for 2013.

4. Top tax rates for the FET, FGT and GST have all risen from 35% under TRA 2010 to 40%.

5. Perhaps the best piece from TRA 2010, FET and FGT portability, are now made permanent. Portability allows a surviving spouse to take advantage of the remaining portions of the FET and/or FGT exemptions of the deceased spouse. The GST exemption is still not portable.

As was the case with EGTRRA and TRA 2010, ATRA 2013 consists of Federal tax law changes, which do not apply to state estate tax laws such as those in New Jersey. While the federal exemptions of ATRA 2013 are accommodating of a large number of estates, they certainly do not address the many non-tax reasons for having a thorough estate plan that meets your individual situation, needs and goals. Connor, Weber & Oberlies stands ready to assist clients in Pennsylvania and New Jersey with their estate planning needs. Please contact us for a review of your current estate plan, or to schedule an appointment to update or prepare an estate plan for you.