Obama’s 2013 Budget Proposal to Push Estate Tax Back to 2009 Terms

Estate Planning

Although Obama’s American Taxpayer Relief Act was said to make permanent changes, lawmakers had also advised that it was just the first step in a series of changes. Now Obama’s 2013 budget proposal has several amendments, of which are changes to tax laws that were recently made permanent by the American Taxpayer Relief Act.

One of the many changes affecting taxpayers in Obama’s 2013 budget proposal is the reversion of the estate tax rate to 2009 terms. According to the proposal, beginning in 2018, estate tax exemptions will return to a $3.5M and amounts in excess will be taxed at 45%. These proposed changes come just a few months after the American Taxpayer Relief Act was signed into law; a law that set forth a higher exemption and lower estate tax requirements that were indexed for inflation. Reverting to 2009 terms means the exemption will not be indexed for inflation.
In addition to the estate tax changes, many “estate tax loopholes” will be removed, limiting tax reduction planning for wealthy Americans unless they quickly take action with the assistance of an estate planning attorney. The budget proposal also affects:
  • Grantor retained annuity trusts (GRATs). The proposal creates multiple restrictions by posing a minimum term of 10 years and a maximum term of life expectancy of the annuitant plus 10 years.
  • Eliminates zeroed-out GRATs. Grantors will be required to make a taxable gift when setting up a GRAT.
  • Reporting requirements of executors and lifetime gift donors. Executors and lifetime gift donors will need to complete valuation paperwork for the IRS and the recipient.
  • Dynasty trusts. Many families use dynasty trusts to take advantage of the generation-skipping tax exemption, however the proposal sets forth to remove the exemption after 90 years.
With the unpredictable legislation changes affecting estates, it is increasingly important to schedule routine reviews with a North Carolina estate planning attorney. Effective asset protection tools, tax-savings strategies, and other planning devices will help individuals avoid the impact of fluctuating estate tax requirements.
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