Probate & Trust Law Section Conference Manual ... - Minnesota CLE

ESTATE AND GIFT TAX PLANNING AFTER THE AMERICAN TAXPAYER RELIEF ACT OF 2012
For the basics on the American Taxpayer Relief Act of 2012 (“ATRA”), see page 2 of these
materials. Now we consider how ATRA dramatically affects estate and gift tax planning.
1. The Easy Part: Understanding the Changes
ATRA introduced a “permanent” 40% top rate for federal estate, gift, and generation‐skipping
transfer taxes, together with a “permanent” $5 million applicable exclusion amount adjusted
for post‐2011 inflation (the 2013 exclusion amount is $5.25 million, an increase from the $5.12
million exclusion in effect for 2012).
ATRA also made “permanent” the portability election first introduced in Tax Relief and
Unemployment Insurance Reauthorization and Job Creation Act of 2010. Portability, recall, is
implemented through a redesign the “applicable exclusion amount.” Specifically, surviving
spouses may, following an election by the first spouse to die’s executor, add the “deceased
spousal unused exclusion amount” (known in the regulations as the “DSUE Amount”) to the
$5.25 million basic exclusion amount. The DSUE Amount generally consists of the unused
portion of the basic exclusion amount from the surviving spouse’s “last deceased spouse.”
Though the number of technical changes to the transfer tax regime is minimal, 8 the impact on
estate planning is profound, especially for married couples.
2. The Hard Part: Figuring Out What the Changes Change
From an estate planning perspective, we have three kinds of married clients: couples with a
combined estate below the $5.25 million applicable exclusion amount, those with a combined
estate between $5.25 million and $10.5 million, and those with an estate above $10.5 million.
Each has unique estate planning needs.
COUPLES WITH ESTATES BELOW $5.25 MILLION
For clients with assets below the $5.25 million exclusion amount, estate planning has a
four‐pronged focus: (1) implementing documents that transfer assets to the desired
beneficiaries at the appropriate time; (2) coordinating beneficiary designations consistent with
the overall plan; (3) income tax planning; and (4) the preservation and management of assets.
8 By repealing the “sunset” provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the
Jobs and Growth Tax Relief Reconciliation Act of 2003, ATRA also made “permanent” various other rules including:
(1) elimination of the deduction for qualified family‐owned business interests under §2057, (2) elimination of the
state death tax credit in favor of the §2058 deduction for state death taxes, (3) the automatic allocation of
generation‐skipping transfer tax exemption to lifetime transfers to generation‐skipping trusts under §2632(c), and
(4) broader rules for conservation easements under §2031(c).
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