A Boutique Trusts & Estates Law Firm

IMPORTANT Federal Estate and Gift Tax update

Thursday, February 16th, 2012

Estate and Gift Tax Rules May be Changing for the Worse…

Take Advantage of the Current Rules before the end of 2012

As you may know, President Obama released his 2013 Budget Proposal on Monday. Included in the proposal are changes to the estate tax, gift tax and generation skipping-transfer tax (GST tax), as well as limitations on highly effective planning techniques such as valuation discounts, Grantor Retained Annuity Trusts (GRATs), and sales to Intentionally Defective Grantor Trusts (IDGTs). Although these proposals are not yet law, they indicate the direction the Administration is moving with regard to estate and gift taxation. The highlights of the Budget Proposal are outlined below:

Estate Tax

– The amount exempted from the estate tax would permanently decrease from $5 million to $3.5 million.

– The rate at which any amount in excess of the exemption amount is taxed would increase from 35% to 45%.

– Portability (the ability of the surviving spouse to apply any unused estate tax exemption amount to the assets in their estate) would be made permanent.

Gift Tax

– The lifetime exemption amount for gifts would permanently decrease from $5 million to $1 million.


– The amount exempted from GST tax would permanently decrease from $5 million to $3.5 million.

– Trusts could no longer be exempt from GST tax for unlimited multiple generations. 90 years after the creation of a trust that distributes to skip persons, the GST exemption allocated to the trust would terminate.

Valuation Discounts

– Discounts would be limited for transfers of an interest in a family-controlled entity (such as a Family Limited Partnership or Family Limited Liability Company) to a member of the family.

Grantor Retained Annuity Trusts and Intentionally Defective Grantor Trusts

– GRATs and sales to IDGTs would no longer be effective estate planning strategies.

– GRATs would be required to have a term of at least 10 years and a maximum term of the life expectancy of the annuitant plus 10 years. The remainder interest would be required to have a value greater than 0 when the interest was created and the annuity could not decrease during the GRAT term.

– Appreciated assets that have been sold to an IDGT would be included in the grantor’s gross estate for estate tax purposes.

– Distributions from IDGTs could be considered taxable gifts.

If you have any questions regarding the Budget Proposal, please contact us at 410.828.7775 or email John Robinson at: jrobinson@janesimslaw.com.