Alert: Estate Planning - January 2013


For the first time in more than a decade, clients and advisors can plan their estates with a significant degree of certainty.  The new tax law passed by Congress on January 1, 2013 and signed into law by President Obama avoided the so-called “fiscal cliff” and made various tax provisions “permanent,” averting much more onerous federal estate and gift tax rules.

Highlights of the American Taxpayer Relief Act of 2012 (the “Act”) that clients should consider in connection with their estate planning include:

  • The Act prevents steep increases in federal estate, gift and generation skipping transfer taxes (GST) by “permanently” setting the exemption amount at $5 million (indexed for inflation in 2013, the exemption amount will be $5.25 million). The top estate, gift and GST tax rates increase from 35 percent to 40 percent for transfers in 2013 and later. (Note: the Connecticut estate and gift tax exemption remains at $2 million.)
  • The Act maintains a feature known as “portability,” that allows the estate of the first spouse to die to elect to transfer his or her unused estate tax exemption to a surviving spouse.  (Note: the portability rules do not apply to the GST exemption or the Connecticut estate tax exemption.)
  • The Act reinstates a provision that allows IRA distributions by individuals over age 70 ½ made directly to qualifying charities through December 31, 2013 (up to a maximum of $100,000) to be excluded from income.

Although not part of the Act, it is important to note that the annual gift tax exclusion amount (which is indexed for inflation) increased to $14,000 per recipient on January 1, 2013.

With this new certainty regarding how the tax laws will affect you, now is a good time to review and update your estate plan. Even if your assets are below the federal exemption amount, planning may be appropriate to maximize your Connecticut estate tax exemption and to deal with the many non-tax reasons that should be incorporated into your estate plan to keep it current.

To discuss how the American Taxpayer Relief Act of 2012 may affect your estate plan, please contact a member of our Trusts and Estates Department.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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