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Ethel R. Kaplan, J.D., CTFA
Senior Vice President and Trust Officer
The Chicago Trust Company

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012. This Act, known as ATRA, brought us back from the “fiscal cliff” for tax purposes and, for the first time in 12 years, gave us a permanent set of estate, gift, and generation-skipping transfer tax rates and exemptions.

Over the past year there has been considerable speculation focused on options ranging from total repeal of the so-called “death tax,” to a return to pre-2001 law where the death tax was set at $1 million with a marginal rate of 55%. However, the new law is identical with respect to the estate tax and gift tax rules that applied in 2012, with two exceptions: the marginal rate was raised from 35% to 40%, and there are no sunset provisions.

Unified Exemption
With unified estate and gift tax exemptions maintained at their 2011 and 2012 levels, we now know that the rush to make large gifts at the end of 2012 may not have been necessary. However, while the timing of some gifts was dictated by the January 1 “sunset” that was mandated by the rules on the books when 2012 ended, these year-end gifts generally reflected serious thinking about estate planning priorities, responsibly provided younger generations with access to family wealth, and removed any future appreciation in transferred assets from the reach of the gift and estate taxes.

Estate Tax and Portability
ATRA extends portability. This means that the estate tax exemption will continue to be portable between spouses. Thus, a surviving spouse can use the deceased spouse’s unused federal estate tax exemption without having to rely on trusts. Ostensibly, a portable estate tax exemption reduces the need for bypass trusts for all but the wealthiest families.

Gift Tax
ATRA also continues the gift tax exemption of $5 million. Indexed for inflation, this exemption will be $5.25 million for individuals and $10.5 million for married couples in 2013. Thus, under the act, a married couple may make lifetime gifts up to $10.5 million without incurring any federal gift tax. The maximum rate on gifts over this amount is 40%. Also note that the gift tax annual exclusion amount has increased from $13,000 in 2012 to $14,000 in 2013. This is the amount that an individual can give to anyone once a year without incurring gift tax. A person can gift up to $14,000 to as many separate recipients as he or she wishes during the year. Couples can make gifts totaling $28,000.

Generation-Skipping Transfer (“GST”) Tax
The GST tax is assessed on transfers during lifetime, or at death, to or for the benefit of grandchildren, or more remote descendants. It is in addition to any gift or estate tax that may apply. ATRA extends the $5 million exemption, indexed for inflation, and applies a 40% rate on gifts over the exemption amount.

In ATRA, Congress gave us unified rates for estate, gift, and GST taxes. It made these rates permanent; there is no sunset in the law. However, it would be naïve to assume that Congress is finished making changes to the tax law, and while permanence at last is a welcomed relief, it lasts only until Congress chooses to make more changes.

To discuss these and the many other options for reducing a large estate, contact a Wintrust Wealth Management Financial Advisor.


Our firm does not provide tax or legal advice. Although this information may answer some questions, it is not intended to be a comprehensive analysis of the topic. In addition, such information should not be relied upon as the only source of information; competent tax and legal advice should always be obtained.