President Obama's Budget Proposal: What's Ahead for the Estate Tax?
By Teresa Ambord
- The per-person estate tax exemption would drop from the current level of $5.25 million, as indexed for inflation, to $3.5 million and will not be indexed for inflation, beginning in 2013.
- The top estate tax rate would jump from the current level of 40 percent to a maximum of 45 percent, also for 2013.
- The generation-skipping transfer tax would also return to these parameters, and the gift tax, to $1 million, also starting in 2013.
Estate Tax Provisions in President Obama's Budget Proposal
The AICPA says the estate tax provisions in President Obama's fiscal year 2013 budget proposal would:
- Make permanent the portability of unused exemption amounts between spouses (starting in 2013).
- Require consistency in value for transfer and income tax purposes (effective date of enactment).
- Modify the rules on valuation discounts (for transfers after the date of enactment).
- Require a minimum ten-year term for grantor retained annuity trusts (GRATs) and a maximum term of the life expectancy of the annuitant plus ten years – impacting the ability to use GRATs for estate tax planning (applicable to trusts created after the date of enactment).
- Coordinate certain income and transfer tax rules for grantor trusts – affecting planning with intentionally defective grantor trusts (IDGTs).
- Limit the duration of GST exemption to 90 years (for additions to pre-existing trusts and trusts created after the date of enactment).
- Extend the lien on estate tax deferrals provided under Sec. 6166 up to fifteen years and three months from the date of death) (for decedents dying after the effective date and pre-existing unexpired liens on the effective date).
Obama's budget would also curtail the ability to use what the White House calls "estate tax loopholes," which are complex estate planning strategies. These include such tools as valuation discounts; grantor retained annuity trusts (GRATs); and health and education exclusion trusts, also known as HEETs. (See sidebar for more estate tax changes.)
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