Post Fiscal Cliff – Changes to Estate and Gift Tax

estate tax changesAs most people are aware by now, on January 1, 2013, the United States Congress passed a bill that allegedly keeps us all from falling off the proverbial “fiscal cliff”. The new law made some permanent changes to estate and gift taxation that has been eagerly awaited by estate tax attorneys and clients. Here is a brief summary of the key points you need to know about the new law.

Estate Tax Exemption

In 2012, the estate tax exemption (the amount of wealth an individual could die owning before having to pay estate taxes) was $5.12 million dollars ($10.4 million for married couples). The estate tax exemption was scheduled to reduce to $1 million dollars per person on January 1, 2013. The good news is that the new law makes the $5.12 million dollar exemption permanent.

Estate Tax Rates

In 2012, the rate of tax on estates in excess of $5.12 million was 35%. That rate was scheduled to increase to 55% on January 1, 2013. The new law increases the rate from 35% to 40%, but is far less than 55%. This is another good result from the new law.


The 2010 to 2012 tax extension introduced the concept of “portability” of personal estate tax exemptions to surviving spouses. In essence, for married couples, so long as the surviving spouse timely files a Form 706 after the death of the deceased spouse, the surviving spouse can take advantage of the deceased spouse’s estate tax exemption even if no estate planning has been done. The new law makes portability of the estate tax exemption between spouses permanent.

Gift Tax

Finally, the 2010 to 2012 tax extension increased the lifetime gift tax exemption (the amount of wealth a person can give away before paying gift tax) from $1 million to $5.12 million in 2012. The gift tax exemption was scheduled to return to $1 million on January 1, 2013. The new law keeps the estate tax exemption and the gift tax exemption unified at $5.12. Again, this is good news for clients.

Though the full extent of the new law has yet to be finally analyzed, at first glance most of the advantages set forth in the 2010 to 2012 tax extension have been preserved and made permanent. Further clarification on the new law will be forthcoming as the information becomes available.

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