Estate Planning Implications of the Fiscal Cliff Deal

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After a last-minute deal to avoid the fiscal cliff was passed by Congress on January 1, 2013, President Obama signed into law the new American Taxpayer Relief Act (“ATRA 2012”) on January 2, 2013. ATRA 2012 extends indefinitely the historically large Federal gift, estate, and generation-skipping transfer (GST) tax exemptions, while introducing a modest increase in top rates for those taxes.

Exemptions previously scheduled to decrease on December 31, 2012 are extended indefinitely. Clients who did not use their Federal exemptions in 2012 will continue to have the opportunity to do so. Under ATRA 2012, the favorable $5 million Federal gift and estate tax exemption amounts will continue indefinitely, allowing each individual to transfer that amount during lifetime or upon death without the imposition of Federal gift or estate tax. Without action by Congress, the exemption amounts would have reverted to $1 million per individual. In addition, the $5 million Federal GST tax exemption will continue, allowing clients to provide for significant generation-skipping transfers without the imposition of tax.

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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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