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I Want My Exemption Back! Reconsidering Gift Splitting after The American Taxpayer Relief Act of 2012

In 2012, the federal estate and gift tax exemption, which is the amount a person can give in life or pass at death before having to pay estate and gift tax, was $5,120,000 per individual. As the infamous “fiscal cliff” approached, the federal exemption was set to drop back to $1,000,000 per individual on January 1, 2013 if Congress did not pass new tax legislation. At that time, most commentators believed that Congress would compromise by lowering the exemption to $3,500,000, which was part of the Obama Administration’s tax plan.

Based on these assumptions, many clients entered into gifting plans in 2012, the primary goal of which was to use as much of the $5,120,000 exemption, or combined exemption of $10,240,000 for married couples, as possible before it was lost. Many married couples who could not give $10,240,00, transferred assets to a single spouse to allow that spouse to give

Effects of the American Taxpayer Relief Act of 2012 on Estate Planning

Unless you have been living on a tropical island with no television, cell service, or internet for the past few days, you have probably heard that the Federal government passed a new law this week, averting the “fiscal cliff” by the skin of their teeth (well, at least with respect to tax reform, it remains to be seen what will happen with spending cuts). While there are many portions of the “American Taxpayer Relief Act of 2012” (the “2012 Act”) that may apply to you (for example, see our prior post on the effects of the 2012 Act on charitable gifting), our focus now is on how the new law affects your estate planning.

The New Law

Since 2001, the transfer tax laws have been in a state of flux, with ever-changing exemptions, rates, expirations and sunsets. Now, for the first time in over a decade, the 2012 Act

Cliff Diving Averted

Cliff Diving Averted

January 2, 2013

Authored by: Stephanie Moll and Matthew C. Jessee

Effective December 31, 2012, Congress passed The American Tax Relief Act of 2012 which, in part, sets the following policies.  President Obama is expected to sign the bill into law, although he has not said when.  More detailed analysis of the new law to come.

Tax Policy:

· Marginal Rates: Permanent extension of current policy up to $400,000 for singles, $450,000 for married couples.

· Capital Gains & Dividends: Permanent: 15% top capital gains and dividends rate up to $400k (singles), $450k (married); 20% rate for both above threshold.

 · Death Tax: Permanent extension of current policy on portability and unification with a $5M exemption indexed for inflation and a 40% top rate.

· PEP & Pease: Permanent relief from PEP & Pease under $250,000 (single), $300,000 (married).

· AMT: Permanently index AMT for inflation.

· Tax Extenders: Adopts package reported by Finance Committee in 2012, with a 2 year

“Let’s pass the tax relief portion now, let’s take what’s been agreed to and get moving.” — McConnell

Senate Minority Leader Mitch McConnell (R-Ky) announced this afternoon on the Senate floor that he and Vice President Joe Biden have reached agreement on all the outstanding tax issues, although they were still negotiating how to modify the $109 billion in automatic spending cuts set to take effect tomorrow.  He urged Congress to immediately clear the tax deal in order to prevent historic tax hikes get to go into effect tomorrow, stating “Let’s pass the tax relief portion now, let’s take what’s been agreed to and get moving.”

Obama on the Fiscal Cliff

Obama on the Fiscal Cliff

December 31, 2012

Authored by: Stephanie Moll and Matthew C. Jessee

President Obama addressed the nation today regarding the status of negotiations on the fiscal cliff.  According to Obama, a deal is “within sight but it’s not done”.

The current negotiations include:

  • Raising taxes on households that make more than $450,000 per year and individuals who make more than $400,000
  • A permanent patch to the Alternative Minimum Tax
  • A raise in the estate tax rate
  • An extension of unemployment benefits for a year
  • extending several middle-class tax cuts for five years; and
  • a temporary fix to Medicare reimbursement rates.


Even if an agreement is reached, it is unclear whether both the House and the Senate will act before the midnight deadline tonight to pass a bill.

Talks From the Top of the Cliff

Overnight negotiations took place between Senate Minority Leader Mitch McConnell (R-Ky.) and Vice President Joe Biden in a last-minute attempt to avoid toppling over the fiscal cliff.  Reports state that they made “major progress” toward a deal, which would increase tax rates for families who earn more than $450,000 and individuals who make more than $400,000.  The estate tax issue has not resolved by the two.

President Obama is scheduled to make a statement about the fiscal cliff at 1:30 EST.

Fiscal Cliff Update

Fiscal Cliff Update

December 27, 2012

Authored by: Matthew C. Jessee

On Thursday, with five days remaining before the January 1st “fiscal cliff,” President Obama and the Senate returned to Washington to broker a deal that avoids the fiscal cliff’s tax increases and spending cuts. On Wednesday, House Republican leaders released a joint statement which urged the Senate to either approve or amend House-passed bills to prevent the fiscal cliff and vowed to call the House back into session if the Senate passes legislation. However, prospects for a deal remained dim when the Senate convened at 10:00 am today and Majority Leader Harry Reid stated that going over the fiscal cliff “looks like that’s where we’re headed.” Reid said Republicans must come up with a plan that can win back-to-back House and Senate bipartisan congressional majorities. However, rumors continue to circulate that President Obama will soon introduce his own bill that both the House and Senate can pass that averts the

Fiscal Cliff Bill Fails in House

Fiscal Cliff Bill Fails in House

December 21, 2012

Authored by: Matthew C. Jessee

On Thursday night, House Republican leaders pulled their “Fiscal Cliff” bill from the floor because it lacked enough votes to pass. The bill known as “Plan B” would have permanently extended all tax rates for income under $1 million including dividends and capital gains. The legislation would also have made permanent the AMT patch and estate tax rates as well as replaced the sequester cuts for one year through a mix of cuts to non-defense domestic programs. With the bill’s failure to even receive a vote, Speaker John Boehner is now unlikely to get any deficit plan through his chamber without relying on Democratic votes. At a press conference Friday morning, Boehner announced the House has recessed until January, and he will not resume talks with the President. However, a deal is still possible before year’s end if the Senate passes a bill that Boehner could muscle through the House

House of Representatives Set to Pass Fiscal Cliff Bill

The House of Representatives will likely pass legislation today to extend all rates, including capital gain and dividends, for income under $1 million.  The bill also includes a permanent extension of the 35% estate tax rate with an exemption of $5 million.

It is unlikely the bill would pass in the Senate, and the President has indicated that he would veto the bill.


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