The American Taxpayer Relief Act of 2012: A (Mostly) Happy New Year for the Estate, Gift and GST Taxes

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The nation having stepped off the dreaded fiscal cliff at the end of 2012, Congress immediately pulled the ripcord, passing the “American Taxpayer Relief Act of 2012” (the 2012 Act) on New Year’s Day. President Obama signed the 2012 Act into law on January 2, 2013. The new law has important – and mostly positive – consequences for the federal estate, gift and generation-skipping transfer (GST) taxes. First and foremost, the 2012 Act prevents the reinstatement of the pre-2001 estate, gift and GST tax exemptions and rates that would have occurred automatically under prior law. But for the 2012 Act, the estate, gift and GST tax exemptions, which had increased to $5 million apiece (indexed for inflation) under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, would have reverted to approximately $1 million apiece, and the 35% maximum rate for each of those taxes that was effective in 2011 and 2012 would have jumped to 55%.

The 2012 Act -

The 2012 Act provides the following:

- For decedents dying after December 31, 2012, the estate tax exemption is set at $5 million, indexed for inflation from 2010. The inflation-adjusted estate tax exemption for decedents dying in 2013 is expected to be $5.25 million.

- The gift and GST tax exemptions are also set at $5 million, indexed for inflation from 2010. Thus, the 2013 gift and GST tax exemption amounts are expected to be $5.25 million per taxpayer ($10.5 million for married couples who elect to split gifts).

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