ESTATE AND TAX PLANNING Federal Estate and Gift Tax Rules Made “Permanent”?

Legislation passed by both Houses of Congress, and then signed by the President on January 2, 2013, has fixed the applicable Federal estate and gift tax exemption at $5 Million, indexed for inflation. The top applicable estate and gift tax rate has been increased from 35% to 40%. Details relating to the new law, The American Taxpayer Relief Act of 2012
(the “Act”), remain to be stated in Regulations.

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Background:
For more than 10 years, our Federal estate and gift (and generation skipping transfer) tax rules have been in flux. Starting in 2001, the estate tax exemption was increased in stages to $3.5 Million over nine years and the top rate reduced in stages to 35% while the separate gift tax exemption remained at $1 Million. The Federal estate tax was eliminated entirely in 2010, then restored retroactively subject to a carryover basis income tax option. In 2011, the exemption for both estate and gift tax purposes was increased to $5 Million and the maximum rate lowered to 35%. This regime was scheduled to sunset on December 31, 2012 and revert to the 2001 position (a $1 Million exemption and 55% top rate). This is the way things stood until action was taken earlier this month.

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