New Tax Act Provides Long-Awaited Clarity and Certainty on Estate, Gift and Generation-Skipping Transfer Taxes, and Income Tax Rates

On January 1, 2013, the Senate and the House of Representatives passed the American Taxpayer Relief Act of 2012 (ATRA), averting the so-called “fiscal cliff.” The legislation, which was signed by President Obama on January 2, 2013, includes several major changes to the Internal Revenue Code. Following is an overview of those aspects of ATRA that are expected to be most relevant to clients of our Trusts, Estates and Non-Profit Organizations group. Of greatest significance, ATRA finally made permanent (subject to any future legislative changes) taxpayer-favorable wealth transfer tax exemptions that had applied temporarily in recent years, accompanied by a relatively modest tax rate increase for transfers that exceed the exemption.

ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS -

Continues Same (High) Exemption Amount; Increased Maximum Tax Rate. ATRA provides that the estate, gift and generation-skipping transfer (GST) tax applicable exclusion amount—often referred to as an “exemption” amount—are unified at $5 million, indexed for inflation after 2011, with a maximum increased tax rate of 40%. (The maximum tax rate for was 35% in 2011 and 2012.)

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