Fiscal Cliffhanger Settles Wealth Transfer Tax Regime
Kelley Drye Client Advisory
January 15, 2013

On January 1, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the "Act"), which, after a decade of uncertainty, gives permanency with respect to the Federal estate, gift and generation-skipping transfer (“GST”) tax provisions of the Unites States law.  The Act applies to estate, gift and GST transfers in 2013 and subsequent years.

Exemption Amount Made Permanent

The Act makes permanent the $5 million per person exemption from estate, gift and GST taxes for lifetime transfers and transfers at death, plus an adjustment for inflation.  The IRS has not yet issued any official guidance for the inflation adjustment for 2013, but it is projected that the inflation-adjusted amount in 2013 will be approximately $5.25 million per person, or twice that amount for married couples.

Increase in Transfer Tax Rate

For transfers in excess of the exemption amount, estate, gift or GST tax will be imposed at a flat rate of 40% -- an increase over the 35% rate applicable in the last two years.

Portability of the Exemption Between Spouses Continued

The Act also makes permanent the portability of the estate tax exemption between spouses, meaning that a surviving spouse may choose to apply his or her deceased spouse’s unused estate tax exemption to his or her own gifts and transfers at death.

Increase in the Annual Gift Tax Exclusion Amount

Independent of the Act, the inflation-adjusted annual gift tax exclusion increases from $13,000 to $14,000 per donee, or $28,000 per donee for married couples.

New York’s Estate Tax Unaffected by New Law

The New York State’s estate tax regime is not affected by the passing of the new legislation.  Estates of $1 million or less will not be subject to estate tax and New York’s estate tax rate will remain at the top rate of 16%.  Any state estate tax paid continues to be deductible for purposes of the Federal estate tax.  There is no gift tax in New York.

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This is only a summary of the relevant provisions of the Act.  Accordingly, we encourage you to contact us to discuss your specific situation in detail.  You should not take any planning actions without seeking the advice of a tax professional.

For more information about this advisory please contact:

Carolyn R. Caufield
(212) 808-7625
ccaufield@kelleydrye.com

Christina M. Mason
(212) 808-7509
cmason@kelleydrye.com