Posted by: Heinz Brisske

The fiscal cliff “compromise” hammered out over the New Year’s weekend included several provisions relating to gift and estate taxes. Bottom line: not much has changed.

What follows is a summary of the provisions of the tax legislation passed by the House and the Senate and expected to be signed by President Obama.

“Permanent” estate, gift and generation skipping transfer tax relief. EGTRRA (Economic Growth and Tax Relief Reconciliation Act, commonly known as the Bush tax cuts) phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, and lowered the gift tax rate to 35 percent and increased the gift tax exemption to $1 million for 2010. In 2010, TRUIRJCA (Tax Relief Unemployment Insurance Reauthorization and Job Creation Act) set the exemption at $5 million per person with a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount was indexed beginning in 2012. The bill makes permanent the indexed TRUIRJCA exclusion amount and indexes that amount for inflation going forward, but sets the top tax rate to 40 percent for estates of decedents dying after December 31, 2012.

Portability of unused exemption. TRUIRJCA allowed the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse for estates of decedents dying after December 31, 2010 and before December 31 2012. The bill makes “permanent” this provision and is effective for estates for decedents dying after December 31, 2012.

Reunification. Prior to the EGTRRA, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The TRUIRJCA reunified the estate and gift taxes. The bill “permanently” extends unification and is effective for gifts made after December 31, 2012.

Although these changes to the gift and estate tax laws are “permanent,” we have all come to realize that permanent tax legislation, especially when it comes to gift and estate taxes, is somewhat of an oximoron. Let’s hope that we have some stability in this areas for at least the next several years. As Washington continues to battle through this process, don’t be surprised by tweaks or even retractions and wholesale changes to these and other provisions.