Wealthy and Worried



The American Taxpayer Relief Act of 2012 made permanent the major changes made in 2010 in the law regarding gift, estate, and generation-skipping transfer taxes.

Gift Tax – the tax-free annual exclusion amount is $14,000 per donee. The cumulative lifetime exemption increased from $5,250,000 in 2013 to $5,430,000 in 2015. The tax rate on gifts in excess of $5,430,000 is 40%.

Estate Tax – The estate tax exemption (reduced by certain lifetime gifts) also increased from $5,250,000 in 2013 to $5,430,000 in 2015. The estate tax rate on the excess value of an estate remains at 40%. All of a decedent’s assets (other than “income in respect of a decedent” such as IRAs and retirement plan benefits) are equal to the fair market value of those assets at the date of death (stepped up or down basis.). So be sure to advise your broker of your new basis in securities received by inheritance as they are required by the IRS to retain basis records.

GST Tax – the 2015 lifetime exemption also has increased to $5,430,000 and the rate also remains at 40%.

Portability of Estate Tax exemption. The 2012 Act also made permanent the temporary “portability rules introduced in 2010 that provide for the transfer of a deceased spouse’s unused estate tax exemption (DSUEA) to a surviving spouse. But remember there is no inflation adjustment and the DSUEA does not apply to GST taxes. Portability may allow some couples to forgo a more complex estate plan while still taking advantage of both spouses’ transfer tax exemption but it must be irrevocably elected on a timely filed estate tax return, even if a return is not otherwise required to be filed.

In 2015 married couples can get the benefit of two individual exemptions, so in 2015 the total exemption per couple will be almost $11 million.

As a result, the federal estate tax is no longer the biggest concern for most affluent Americans who want to avoid taxes on wealth they leave to heirs – as it was for many years.