Article

Publication year2014
Pages20
Article
Vol. 27 No. 1 Pg. 20
Utah Bar Journal
February, 2014.

January, 2014.

WHAT THE AMERICAN TAXPAYER RELIEF ACT OF 2012 AND PORTABILITY MEAN TO UTAH ESTATE PLANNERS

John S. Treu.

The American Taxpayer Relief Act of 2012

After several weeks of politicking, posturing, threats, endless meetings, and Med compromises, on January 1, 2013, Congress finally passed legislation to avert the so-called fiscal cliff. The American Taxpayer Relief Act of 2012 ("ATRA") was signed into law from Hawaii with President Obama's magic electronic vacation pen on January 3, 2013. So what does the latest bill mean to the attorney who does occasional estate planning work or generally smaller estates? Well, it actually means quite a bit. While ATRA makes changes to the rates and the exclusion amounts that would have otherwise taken effect in 2013, from a functional perspective, the deepest impact for estate planners under ATRA is that the short-term experiment of portability has now been made a permanent fixture of estate planning.

The Estate & Gift Tax Exclusion

Prior to the enactment of ATRA, the estate, generation-skipping tax ("GST"), and gift tax exclusions were set to return to pre-Bush-era tax cut levels meaning the exclusion amount would be only $ 1M with a maximum tax rate of 55% and no portability. Fortunately for the millions of taxpayers with estates with less than $5M and more than $ 1M in assets, ATRA permanently extended the 2010 tax act provisions that applied to estates of decedents who passed away during 2011 and 2012. These provisions include a $5M exclusion, adjusted for inflation after 2010, and a maximum tax rate of 40%. See the American Taxpayer Relief Act of 2012, § 101. More importantly, ATRA increases the gift tax and GST exclusion amounts to this same $ 5M level to reintroduce a true unified credit. This represents a significant increase in the gift tax and GST exclusion amount over the applicable amount for 2011 and 2012.

Portability

Also included in this provision is what is commonly referred to as the concept of portability. See 26 U.S.C. § 2010(c) (2013). Prior to the introduction of portability in 2011, in order for a surviving spouse to utilize the unused exclusion of the deceased spouse, the assets of the deceased spouse had to be placed in an intervivos credit shelter trust (also referred to as an A-B Trust or a marital credit shelter trust) for the benefit of the surviving spouse and the subsequent beneficiaries prior to the death of the first spouse. Absent such a trust when a spouse died and the assets went to...

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