New Jersey residents may be aware that many of the tax benefits originally included as part of the Economic Growth and Tax Relief Reconciliation Act in 2001 were made permanent this spring through the enactment of the American Tax Relief Act of 2012. Although seemingly merely a confirmation of existing laws, the permanent structure and additional tax provisions it put in place can affect certain estate planning strategies.
One significant provision sets the maximum estate, gift and generation-skipping tax at a permanent rate of 40 percent. Furthermore, instead of reverting to the $1 million exemption under EGTRRA, ATRA sets the amount up to which a decedent’s estate is tax-exempt to $5 million. Indexed for inflation from 2011, the amount for 2013 is $5.25 million, allowing more people to inherit without paying estate taxes. Additional provisions relating to the GST, including elections with respect to deemed and retroactive allocation of GST exemption under and qualified severance of a trust and rules regarding late GST elections will likely influence planning as well.
Finally, ATRA reinstated the stepped up income tax basis used prior to 2010, valuing the property as of the date of death of the decedent, and allowed the carryover basis used under EGTRRA to expire. Heirs will no longer have the option of selecting the original income tax basis of the decedent as the value of inherited property.
Since ATRA merely extends provisions already in force, its impact may seem insignificant. However, the permanence of the tax provisions is considerable as it allows estate planners and their attorneys to look farther into the future, making it necessary to review estate plans already in place to ensure consideration of all available planning strategies.
Source: Forbes, “ATRA: An Unexpected Plus To Your Estate Planning — Part I“, Lewis Saret, June 13, 2013