ATRA -Transfer Tax Changes Related To Trusts,
Estate and Gift Tax in the 2012 Act (Passed in 2013)

The key provisions of ATRA (which was passed just after the new year) include: 

1) Continued unification of all three wealth transfer taxes (estate, gift, and
generation-skipping transfer) with an applicable exclusion amount of $5.25
million (indexed for inflation) for all three. 
2) A top estate and gift tax rate of 40%—up from 35% in 2012. 
3) The annual gift tax exclusion (which is indexed for inflation) rose
to $14,000 in 2013 - up from $13,000 in 2012. 
4) "Portability" of a deceased spouse’s unused exclusion or credit was
made "permanent" and this This means that couples can - with planning
and by filing a 706
at the death of the first spouse - use their combined
exclusion amount ($10.5 million this year). 
5) This amount is now indexed for inflation and is already up to 5.25 million
dollars and may rise again in the future.
6) Limits on grantor retained annuity trusts (GRATs), intentionally defective
grantor trusts, and valuation discounts were considered but not included
in the law. However, the administration is still looking to make changes and to
limit or eliminate some of these techniques. 

Estate Planning Implications - What does this mean for you?

I just got back from the Heckerling Institute and we are doing significant
research now on what the new rules may mean for estate reduction
strategies and tactics.

Strategy:  Get together with your estate planner to consider using a
disclaimer trust or other techniques to allow flexibility in deciding between
portability and trusts.

For example, on the one hand, portability of the spousal exclusion gives
couples a powerful tool for reducing or avoiding estate tax. But by failing to
use trusts, they may miss out on generation skipping to future generations,
creditor protection and divorce protection for the surviving spouse and failure
to protect growth in the assets value from tax.

In addition, income taxes (especially capital gains taxes and 
state death taxes may now become a more important issue for planning. 

Analysis of the tax law also notes that narrowing in the gap between the
estate tax (40%) and the long-term capital gains tax (23.8%) will alter
wealth transfer planning for larger estates. 

Until recently, when the estate tax was 55% and the long-term capital gains
tax was 15%, this gap was much wider. With today’s narrower gap, some
clients may be better off retaining low-basis assets that they might have 
transferred through lifetime gifts in the past. The tax basis of assets in an
estate is stepped up to the value at the time of death, and the higher the
capital gains tax rate, the more valuable this step-up becomes to the heirs. 

Strategy:  Get a higher level of co-ordination between the estate lawyer
and your accountants on this issue if eother or both spouses pass or
if you are names as an executor.

Finally, even though Congress did not change the rules regarding GRATs,
grantor trusts, or valuation discounts, these items may well be revised as
part of the ongoing quest for additional government revenues. 

Strategy: Those of you who are actively considering these trust strategies
may want to act sooner rather than later even though there is no guarantee
that they would be grandfathered.

Strategy: Make sure to adjust your wils, trusts, and beneficiary designations
to relect gifts, and to sue the new laws to geatest advanatge.

David M. Frees III, Jd focuses his practice in the areas of trust, estate, and
asset and elder law planning and administration.  
He can be reached at 
(888) 808-5464 or [email protected]

Douglas L. Kaune heads the Elder Law Solutions Section
of the firm and can be reached at 
(888) 808-5464 OR
[email protected]



David M. Frees, III
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