One of the most dramatic effects of the American Taxpayer Relief Act of 2012 (ATRA) was felt in the area of gift and estate taxes.
In 2012, the estate and gift tax exemptions, indexed for inflation, were set at $5,120,000 each (up from $5,000,000 in 2011). Moreover, in 2012, the surviving spouse could use the unused exemption of a deceased spouse (this is called “portability”). Finally, the gift tax exemption was the same as the estate tax exemption, so taxpayers could make lifetime gifts that fully utilized their exemptions. In some situations, these gifts would shift the gifted assets’ future appreciation and income out of the donors’ taxable estates. The maximum tax rate for transfers in excess of the exemption was 35 percent.
All of these provisions expired on January 1, 2013. The $5,120,000 exemption was reduced to a $1,000,000 and the maximum tax rate was increased to 55 percent; the portability provision also expired. There was also a problem of the infamous “clawback” with respect to taxpayers who gifted their property using the higher exemption limits in 2012.
ATRA corrected the negative impact of the expiration of the 2012 gift and estate tax provisions. It set the permanent exemptions at $5,000,000 with one unexpected surprise – the exemption amount was indexed for inflation. This means that, for 2013, the exemption amount is $5,250,000. The higher exemption amount also renders the clawback provision harmless at this point.
Furthermore, ATRA reinstated the portability provision so that a surviving spouse can still use a deceased spouse’s unused exemption (provided that an estate tax return is filed and the portability election is properly made). However, it should be remembered that the portability is not available for a deceased spouse’s unused generation-skipping transfer tax exemption.
On the more negative side, ATRA raised the maximum tax rate from the 2012 levels to 40 percent. On the other hand, it is still a lot lower than the 55-percent tax that would have been applicable without ATRA.
With respect to charitable contributions, ATRA reinstated the exclusion from gross income for qualified charitable contributions by taxpayers over age 70 ½ of up to $100,000 distributed from an IRA through December 31, 2013. See this article for more details.
Annual Exclusion and Form 3520 Threshold Amount
For the tax year 2013, the gift tax annual exclusion increased from $13,000 to $14,000 per donee and from $139,000 to $143,000 for gifts made to a non-citizen spouse. The threshold at which gifts receivable from foreign partnerships and corporations become reportable to the IRS also increased from $13,258 to $15,102. The threshold amount for Form 3520 (with respect to value of gifts from foreign individuals and estates) remains at $100,000.
Contact Sherayzen Law Office for Help with Your Estate and Tax Planning
If you are in the process of creating your estate and/or tax plan, contact Sherayzen Law Office for help. Our experienced estate planning tax firm will thoroughly review your case, identify available options and prepare all of the required legal and tax documents to implement your plan.