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Julie Garber

Obama's 2013 Budget and Estate Taxes - Same Thing, Different Year

By February 21, 2012

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When I read the estate tax, gift tax and generation-skipping transfer tax provisions of President Obama's 2013 budget proposal, I couldn't help but think "same thing, different year." With that said, here is what the 2013 Obama budget says about proposed changes to the laws governing estate taxes, gift taxes, and generation-skipping transfer taxes:

  1. Restores the estate tax exemption and rate to those that were in effect in 2009 = $3,500,000 estate exemption, 45% estate tax rate. Currently the estate tax exemption is $5,120,000, which leaves a $1,620,000 exemption differential, and the estate tax rate is 35%, which means a 10% rate increase on a lower amount.

  2. Restores the lifetime gift tax exemption and rate to those that were in effect in 2009 = $1,000,000 lifetime gift tax exemption, 45% gift tax rate. Currently the lifetime gift tax exemption is $5,120,000, which means a whopping a $4,120,000 swing, and the gift tax rate is 35%, which means a 10% rate increase on a much lower amount.

  3. Restores the generation-skipping transfer tax exemption and rate to those that were in effect in 2009 = $3,500,000 generation-skipping transfer tax exemption, 45% generation-skipping transfer tax rate. Currently the generation-skipping transfer tax exemption and rate are the same as the estate tax exemption and rate, which also leaves a $1,620,000 exemption differential and 10% rate increase on a lower amount.

  4. Requires consistency in value for transfer and income tax purposes, such 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. Modifies the rules governing valuation discounts, such that an additional category of restrictions (called "disregarded restrictions") would be ignored in valuing an interest in a family-controlled entity transferred to a member of the family if, after the transfer, the restriction will lapse or may be removed by the transferor and/or the transferor's family.

  6. Requires all grantor retained annuity trusts ("GRATs") to have a minimum term of 10 years, thereby increasing the odds that the grantor could 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.

  7. Limits the length of time that Dynasty Trusts can remain estate tax free to 90 years.

All of the above changes are consistent with what was proposed in President Obama's 2012 budget, but, at least to date, none of these changes have been implemented.

With that said, there is one recommended estate and gift tax change in the 2013 budget that has not been made before: Eliminate the estate and gift tax savings that can occur through the use of grantor trusts. For an excellent summary of this and all of the other 2013 estate and gift tax budget proposals, refer to Deborah L. Jacobs' article, Obama Declares War On Rich Folks And Wealth Advisors.

Comments
August 16, 2012 at 8:24 pm
(1) Steve says:

The only economic predictor that has any direct numeral correlation is the worth of member of the national legislative members.

When exemption was 600k so were most congresspersons estate size.

When McCain was running against Obama millions in exemptions were allowed. Now le pauvre parlimentarian is faced with the same 50% loss in wealth as everybody else, except securities fraud and government pensions.

Obama will likely veto any increased exemption amount, except perhaps enough to protect his own estate 2-3millon, and patrian parlimentarians.

Every tax (exceeding 10%) on an estate of less than 50-100 million is likely to result in many closed businesses, farms and reduction in consumer spending.

Set up your irrevocable life insurance trusts now….!!!!

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