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December 10, 2012

To bring you up to date to the extent we are able to do so, based on the estate tax, gift tax and generation-skipping transfer tax provisions of President Obama’s 2013 budget proposal it will:

  1. ESTATE TAX – Restore the estate tax exemption and rate to those that were in effect in 2009 , that is a $3,500,000 estate exemption, and a 45% estate tax rate, a 10% increase over the current rate..  With the current estate tax exemption at $5,120,000, this means a $1,620,000 exemption differential compared to the present exemption.
  2. GIFT TAX – Reduce the lifetime gift tax exemption, currently $5,120,000, returning to a 1,000,000 lifetime gift tax exemption, and holding tax rate to the current 45% rate.
  3. GENERATION SKIPPING TRANSFER TAX – Restore the generation-skipping transfer tax exemption and rate to those that were in effect in 2009, with a $3,500,000 generation-skipping transfer tax exemption, and a 45% generation-skipping transfer tax rate.  The current exemption is $5,120,000 with a 35% rate..
  4. Require consistency in value for estate and gift transfer purposes and income tax purposes.   This means that the basis of the property in the hands of the recipient of the property by gift or after death will be no greater than the value of that property as determined for estate or gift tax purposes (subject to subsequent adjustments). A reporting requirement will be imposed on the executor of the decedent’s estate and on the donor of a lifetime gift to provide the necessary valuation and basis information to both the recipient and the IRS.
  5. Require that all grantor retained annuity trusts (“GRATs”) have a minimum term of 10 years, thereby increasing the odds that the grantor will die during the term and thereby undo the estate and gift tax savings created by using a GRAT. In addition, this proposal would do away with zeroed-out GRATs and instead require the grantor to make a taxable gift at the time the GRAT is set up.  The effect is to eliminate the estate and gift tax savings that can occur through the use of grantor trusts.
  6. Finally, the legislation would Limit the length of time that Dynasty Trusts can remain estate tax free to 90 years.