Avoiding the cliff: estates and trusts: new tax laws for 2013.

• Author: Malekhedayat, Julie
• Position: Regulatoryupdate

As 2012 drew to a close all eyes were on Congress, which finally approved the long-awaited American Taxpayer Relief Act of 2012 Jan. 1, 2013. Imposition of the Act avoided the infamous "fiscal cliff" and enacted a multitude of tax extenders. When it comes to planning for their estate and trust clients in 2013, practitioners will need to know about the many provisions that apply to estates and trusts.

Estate Tax Exemption

The tax-efficient transfer of one's assets at death or through lifetime gifting was made edsier when Congress agreed on a largely unanticipated permanent lifetime estate and gift, exemption of S5 million per taxpayer, adjusted annually for inflation. Absent the new legilation, the lifetime exemption was set to revert to SI million per taxpayer, prompting many clients to make frenzied gift transfers as the clock ran down at the end of 2012.

Adjusted for inflation, the 2012 exemption of $5.12 million per taxpayer is increased in 2013 to $5.25 million-or S10.5 million per married couple. The permanent increase will allow clients with large estates, who were not: able to beat the clock in 20 12, to take advantage of the new exemption amounts for 2013 gift planning.

With annual adjustments, the exemptions should continue to increase each year -or until Congress decides it's time to change the law again.

Gift and GST Tax Exemptions

The Act also made permanent the unification Me gin tax and generation-skipping transfer (GST) tax exemptions and the estate tax exemption, so assets up to the same exemption, amount can be transferred tax-free either during one's lifetime or at death. Prior to 2011, the lifetime gift exemption was limited to S1 million, but was reunified with the estate tax exemption by the 2010 Tax Relief Act.

Estate, Gift and GST Tax Rates

The maximum tax rate paid on taxable estates of those who die in 2013 or later was permanently set at 40 percent, and the gift and GST tax rates were also set at 40 percent a decrease from the 55 percent rates that were scheduled to take effect in 2013. Although the new rates are less than the scheduled increases, they are higher than the 35 percent rates in effect for 2011 and 2012 estates and gills. However, taxpayers now have an element of certainty at least until Further notice--of tax rates and exemptions for lifetime planning.

Spousal Exemption Portability Made Permanent

A relatively new concept, the ability of a surviving spouse to utilize the unused lifetime exemptions of...