Estate Tax Legislation Update

Estate & Gift Tax Law Made Permanent

Under the American Taxpayer Relief Act of 2012, certainty is restored to estate and gift tax planning.

Federal estate tax law now provides for a $5.12 million per-person exemption. The 2012 Act raises the highest estate tax rate from 35 to 40 percent. All other current estate and gift tax policies, including the "portability" election and estate and gift tax "unification" system remain in place.

Estate tax policy has been in flux since 2001, when the Bush tax cuts, known as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) were enacted. It called for higher levels of exemptions and lower tax rates to be phased in over 10 years, with the estate tax totally eliminated in 2010. However, it decoupled the estate and gift taxes, and made other changes in tax law that made estate tax planning more difficult. It also expired for the 2011 tax year, which would make estate tax policy revert to 2001 levels of a $1 million exemption and a 55 percent maximum tax rate. This was revised on an interim basis to raise the per-person exemption to $5 million, indexed for inflation, and re-coupled estate and gift taxes.

The new law now restores certainty to current tax policy.

How You Are Affected

This law can affect you in several ways. For married couples as well as single clients, we need to first make sure that your property will be divided according to your desires, and not dictated by Congress. For more than 50 years it has been common to use a written mathematical formula to divide the assets of a married couple when the first spouse dies to maximize estate tax savings. Likewise formulas have been used to provide funds for charitable causes and to benefit family and friends. Now these formulas and/or estate and gift tax planning techniques may not work for you.

What Should You Do

We encourage you to meet with us as soon as possible to review your estate plan and to make any changes that are necessary to ensure that your property is positioned to receive the maximum step-up in basis increase available under current law. This is a time that demands a new approach to your planning with new thinking and building in flexibility to see that your wishes are fulfilled no matter what Congress will throw at us this year or next. We have solutions that will meet your planning objectives with the least amount of tax impact.

Contact us via e-mail: evsesqcpa@scullytaxlawgroup.com or by phone: (412) 471- 0777 if you have legal, tax or accounting questions regarding your estate, want more information, or to request our newsletter.

Scully & Scully, Llp
600 Grant Street
Suite 660 U.S. Steel Tower
Pittsburgh, PA 15219
(412) 471-0777 Fax (412) 261-2760
E-mail: evsesqcpa@scullytaxlawgroup.com