The American Taxpayer Relief Act of 2012 (the “2012 Act”) had a profound impact on the transfer tax system. I will briefly describe that system and then, by way of background, set the stage for these changes by summarizing where we were on transfer taxes prior to the 2012 Act. I will then describe the major transfer tax changes provided by the 2012 Act and briefly describe the impact of these changes.

INTRODUCTION -

As you may know, our federal government imposes three types of transfer taxes: a gift tax, an estate tax and a generation skipping transfer or “GST” tax. The gift tax is a tax on gifts made during one’s lifetime that are above the annual exclusion amount, which is now $14,000 per donee. The estate tax is a tax on transfers made at one’s death. The government provides each taxpayer with an exemption amount from each of these two taxes. These two systems work together in that each dollar of gift tax exemption used by a taxpayer during his or her lifetime reduces that amount of estate tax exemption remaining at such taxpayer’s death.

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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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