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Congress Passes Sweeping Tax Legislation Affecting Income, Estate and Gift Taxes

Goulston Storrs A Professional Corporation - Boston Office

February 1, 2013

Previously published on January 2013

The American Taxpayer Relief Act of 2012 (“ATRA”) contains several important changes to the estate, gift, generation-skipping transfer (“GST”) and income tax laws. In particular, certain highlights of ATRA include:

  • A permanent extension of the 2012 estate, gift and GST exemption amounts, with an annual adjustment for inflation to $5,250,000 per person in 2013 ($10,500,000 for married couples*). Individuals who did not utilize the gift exemption prior to 2013 may now do so and shift future capital appreciation and income to the gift recipients.
  • A permanent increase to 40% of the maximum estate, gift and GST tax rates (an increase from 35% in 2012).
  • Making permanent the “portability” of estate and gift tax exemption amounts between spouses (but does not extend such portability to the GST tax exemption). A federal estate tax return must be filed for a deceased spouse’s estate to transfer the deceased spouse’s unused exemption amounts to the surviving spouse.**
  • A substantial increase to the income tax of trust and estate income, including the 3.8% Medicare surtax applied to the net investment income of trusts and estates. Trustees and beneficiaries may wish to consider alternative investment strategies and distribution plans to minimize income taxes.
  • The reinstatement through 2013 of the “charitable rollover” rules for Individual Retirement Accounts. A taxpayer who has reached the age of 70 1/2 may direct distributions of up to $100,000 directly from his or her IRA to certain public charities (not including donor advised funds) without including the IRA distribution in taxable income for federal income tax purposes.

In addition, annual exclusion gifts are $14,000 for 2013 (increased from $13,000 in 2012). Individuals may give any person up to $14,000 in 2013 ($28,000 for married couples) free of gift tax.

ATRA does not affect the Massachusetts estate tax, which currently provides for a $1,000,000 exemption and a top tax rate of 16%.

Given the breadth of the changes made by ATRA, and the more technical rules included in the legislation, you may wish to consult with your financial, tax and estate planning advisors to determine whether any changes should be made or actions taken to meet your planning objectives.

** Federal tax benefits to married couples do not yet extend to same-sex spouses.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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