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The American Taxpayer Relief Act of 2012 changes the estate / gift tax laws as follows:
  • Transfer tax exemptions. The 2012 exemptions for estate, gift and generation-skipping transfer taxes remain in effect and are indexed for inflation.
    • The 2013 exemption is $5,250,000, which is $130,000 more than the 2012 exemption.
    • Due to this annual indexing, you can expect to acquire additional amounts of estate, gift and generation skipping transfer tax exemptions each year.
    • For example, if inflation is annually 2.4 percent, the exemption would be approximately $6,340,000 in 10 years.
  • Gift tax exclusion. The annual gift tax exclusion is also indexed to inflation. This year, the annual gift tax exclusion is $14,000 per recipient ($28,000 per recipient for a married couple).
  • Transfer tax rates. The tax rates for estate, gift and generation-skipping transfer taxes are increased from 35 percent (under the 2012 law) to 40 percent.
  • Portability. The portability provisions (allowing spouses to combine their respective estate tax exemptions) remain and have been clarified to improve their effectiveness.
  • Other provisions. All other transfer tax provisions from the 2001 and 2010 tax acts will continue.
  • Effective period. Most important, these provisions are “permanent” as opposed to merely temporarily extended for several years.

President Barack Obama’s most recent budget proposal includes significant changes to transfer tax provisions that would:

  • Dynasty trusts are limited to 90 years;
  • Grantor trusts, including intentionally defective irrevocable trusts (IDITs), will be limited for estate planning;
  • Valuation discounts in gift transfers will be limited; and
  • Grantor retained annuity trusts (GRATs) will require a minimum of a 10-year term.

Please contact us to ascertain whether your current estate plan provides for, and takes full advantage of, these changes.

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