On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (“ATRA”), setting the unified Federal gift and estate tax exemption at $5 million, indexed for inflation ($5.25 million for 2013, expected to increase by $100,000 or more every year thereafter). 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% rates. 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.

ATRA also made “portability” permanent – a great benefit to married couples. If a spouse dies without exhausting his/her lifetime gift and estate tax exemption, so long as the decedent's executor makes the proper election on an estate tax return, the unused exemption amount is credited to the surviving spouse for use during life or at death. Any of the deceased spouse's unused exemption at the second death will be combined with the second to die's estate tax exemption to offset any estate tax liability in the survivor's estate.

Originally published in the Orange County Business Journal. For full article, see below.