ESTATE AND TAX PLANNING Administration’s Budget Proposals Include Important Changes for Estate Planning Clients

In the last several months, President Obama introduced his Fiscal Year 2013 Budget Proposals, including several key provisions that would be of significance to estate planning clients. Some of the most important of these proposals are as follows:

Restoration of the Less Favorable 2009 Exemptions and Rates

The Budget Proposals call for a 45% maximum estate, gift and generation-skipping transfer (GST) tax rate, an exemption of $3.5 Million for estate and GST taxes, and a $1 Million exemption for lifetime gifts. These changes would be applicable to estates of decedents dying, and transfers made, after December 31, 2012. A concern for clients is that a $1 Million gift tax exemption is significantly lower compared to the current $5 Million exemption (which is actually $5,120,000 as adjusted for inflation). If these Proposals become law for 2013, the impending $1 Million exemption may incentivize taxpayers to consider making

larger gifts in 2012 before the current exemption of $5 Million disappears. In addition, absent Congressional action in 2012, it is possible that the exemptions for gift, estate and GST tax will return to the pre-2002 low of $1 Million with a significantly higher top rate of 55%.

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