New Proposals in Estate Taxes Can Affect Palm Springs Residents

An interesting piece by Lewis Saret in Forbes outlines the Treasury Department’s estate tax proposals for 2013. Coachella Valley residents should take note of these proposals since they are significantly different from our current laws expiring in 2012. Notably, the proposals include:

-Bringing back 2009 levels for estate, gift and generation-skipping transfer (GST) taxes -Requiring a minimum ten-year term on GRATS -Permanently allowing “portability”

Estate/Gift Taxes
For 2011 and 2012, the gift and estate tax exemption amount is $5 million and the tax rate is 35 percent. The proposals suggest returning to 2009 levels which included a $3.5 million exemption for estate taxes, $1 million exemption for gift taxes and a maximum tax rate of 45 percent. Although this change will likely face considerable difficulty in Congress, sophisticated estate planning attorneys should nonetheless take these proposals into consideration when drafting new estate plans.

Grantor retained annuity trusts (GRAT) are a common technique loved by attorneys and clients alike to transfer wealth free from estate and gift taxes. An important requirement is that the grantor must survive the term of the GRAT. This has traditionally been overcome by the use of very short term GRATs (usually three years). However, the new proposal would mandate that all GRATs have a minimum term of 10 years.

Portability is the notion that a surviving spouse can use their predeceased spouse’s unused gift or estate tax exemption in addition to their own. Effectively this gives surviving spouses much greater exemption amounts upon their death. The current laws allow for portability but this technique is set to expire at the end of 2012.

We’ll have to wait and see how these new proposals play out in the coming months and whether they actually turn into law by 2013. Contact a Palm Desert estate planning attorney if you would like to discuss these issues or have your current estate plan reviewed.

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