Business Viewpoint: Estate tax's own 'fiscal cliff' averted - for now
BY SAMANTHA WEYRAUCH Business Viewspoint
Thursday, January 17, 2013
1/17/13 at 4:37 AM
In the early hours of Jan. 1, the Senate passed the American Taxpayer Relief Act, and the House of Representatives responded with a supporting vote later that day. The president then signed the bill.
For the nation, the law prevented many of the tax hikes that were scheduled to go into effect in 2013 and retained many tax breaks that were scheduled to expire.
Had the American Taxpayer Relief Act not gone into effect, enhancements to education tax incentives would have ended, the federal estate tax would have reverted to a maximum rate of 55 percent and many other temporary incentives would no longer be available. Even more frightening, individual tax rates on all income groups would have increased, taxpayer-friendly treatment of capital gains and dividends would have disappeared, and the child tax credit would have been reduced.
With the act, there is still an increase on transfer tax rates and income taxes on some high-income individuals, but the impact isn't near as drastic.
From an estate tax perspective, we can stop biting our nails - at least for the time being. The act has prevented steep increases in estate, gift and generation-skipping transfer taxes that were scheduled to go into effect.
There continues to be a $5 million applicable exclusion amount, as indexed for inflation, for individuals dying and gifts made after 2012. The applicable exclusion amount is the cumulative amount that an individual can transfer during life or at death that is not subject to federal gift and estate tax.
The act also states that the top estate, gift and generation-skipping rate is permanently increased from 35 percent to 40 percent. To put things in perspective, without the act, effective Jan. 1 the maximum federal estate tax rate was scheduled to revert to 55 percent with an applicable exclusion amount of $1 million, not indexed for inflation.
The applicable exclusion amount remains portable for estate and gift tax purposes. The portability feature allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse during life and at death.
State death taxes would continue to be deductible in calculating the federal taxable estate.
The act also extends a number of provisions affecting qualified conservation easements, qualified family-owned business interests, the installment payment of estate tax for closely held businesses for purposes of the estate tax, and the repeal of the 5 percent surtax on estates larger than $10 million.
Sorry, we cannot "take back" those 2012 gifts some might have made in anticipation of a looming $1 million applicable exclusion amount (in case anyone is asking), but we can breathe a sigh of relief ... until next time, that is.
Original Print Headline: Estate tax's own 'fiscal cliff' averted - for now
Samantha Weyrauch serves as special counsel at Hall Estill, where she primarily practices in family law.
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