Pub. 11 2012-2013 Issue 4

N e w J e r s e y C o a l i t i o n O f A u t o m o t i v e R e t a i l e r s w i n t e r 2 0 1 3 30 new jersey auto retailer After much political bargaining, federal legislation was enacted last year to address, among other things, the expiration of numerous tax provisions passed under the Bush and Obama administrations. Far from the “grand bargain” originally contemplated, the Ameri- can Tax Relief Act of 2012 (HR 8, the “Act”) only addressed the tax aspects of the so-called “fiscal cliff,” leaving many other issues for later debate. The following article provides a brief summary of what the Act does and does not do with regard to the estate taxa- tion of large estates. Increases Top Estate, Gift and GST Tax Rates • Top 40 Percent Rate . The maximum marginal estate and gift tax rates (and the flat generation-skipping transfer (GST) tax rate) increased from 35 percent to 40 percent. For “decoupled” states that impose a separate state estate tax, the combined effective estate tax rate could reach almost 50 percent (e.g., 49.6 percent in New York). This increases the incentive for lifetime gift planning, since most states do not impose a separate gift tax on lifetime transfers. Makes Other Estate, Gift and GST Tax Provisions Permanent • $5 Million Estate, Gift and GST Tax Exemption, Inflation Adjusted. • The Act permanently unifies the Estate and Gift Tax exemp - tion at $5 million, subject to annual inflation adjustments (e.g., $5.25 million in 2013). • The GST Tax exemption amount is tied to the top Estate Tax exemption amount ($5.25 million in 2013). Clients who attempted to exhaust their Gift and GST Tax ex- emptions in 2012 will have some additional exemptions to work with in 2013. • Deduction for State Death Taxes . The Act allows continued deductions for state death taxes in calculating the federal tax- able estate. • Exemption Portability . The ability to elect portability of Gift and Estate Tax exemption (but not GST Tax exemption) between spouses is made permanent, with a retroactive technical correc- tion to ensure that a surviving spouse receives the full amount of the deceased spouse’s remaining Estate Tax exclusion (up to the basic Estate Tax exclusion amount in effect for the year of death). Estate Tax and Succession Planning After the Cliff By Dennis J. Amico