• Status of Federal Estate Tax Legislation
  • December 26, 2011
  • Law Firm: Day Pitney LLP - Hartford Office
  • The rumors that circulated in November that the Joint Select Committee on Deficit Reduction (the "Super Committee") would propose significant changes to the federal estate, gift and generation-skipping transfer ("GST") tax laws proved to be unfounded, as the November 23 deadline for the Super Committee passed with no action taken. The possibility of change continues to loom, however, with the introduction of a new bill that proposes a reduction in the estate, gift and GST tax exemptions to $1,000,000 and a top tax rate of 55 percent. We can only speculate as to what Congress will do, but enactment appears unlikely at this time. As with past proposals, this bill also includes other provisions that would affect tax planning, such as requiring a minimum ten-year term for grantor retained annuity trusts (or "GRATs"), imposing restrictions on certain valuation and minority interest discounts, and limiting the duration of certain long-term trusts.

    When will the law change?

    There is no indication to date that the current bill will progress further, but it serves as a reminder that the federal estate tax laws continue to be in a state of flux. Absent Congressional action, in 2013 the estate and gift tax exemptions will decrease from $5,000,000 (indexed for inflation) to $1,000,000, and the top tax rate will increase from 35 percent to 55 percent. In addition, the GST tax exemption will decrease from $5,000,000 to about $1,400,000, with a flat rate of 55 percent instead of 35 percent. Of course, there is also the possibility that Congress will act before then.

    What should you do?

    If you wish to make use of some or all of your current $5,000,000 lifetime gifting exemption, it may be prudent to make those gifts as soon as possible to ensure they occur before any federal tax law changes take effect. This includes making gifts outright to individuals, in trust for children and grandchildren, and in certain circumstances for married couples from one spouse in trust for the other spouse and descendants. We are available to discuss your options in light of your circumstances, your objectives and the continued flux in the tax laws.