Exemptions and Rates -

On Jan. 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into effect to avoid the “fiscal cliff,” setting the unified Federal gift and estate tax exemption at $5 million, indexed for inflation (expected to increase by $100,000 or more every year). ATRA set the generation-skipping transfer tax (GST tax) exemption at the same inflation-adjusted amount. Estate and gift tax and GST tax are all permanently set at 40 percent rates. For 2014, the gift and estate tax exemption and GST tax exemption have already hit $5.34 million.

While prior changes in the law governing the amount that could pass free of estate tax went as high as $5 million, and then to an unprecedented unlimited amount in 2010, in every case, the taxpayer had to die to claim such estate tax exemption. ATRA provides for a $5.34 million unified exemption from estate and gift tax, providing wealthy clients with added flexibility for lifetime giving as well ($10.68 million for a couple). Taxpayers who previously exhausted their lifetime gift exemption may now make additional tax-free gifts each year as their lifetime exemption increases, in addition to the annual exclusion amounts of $14,000 per donee.

Originally published in the Orange County Business Journal - April 7-13, 2014.