The infamous “Fiscal Cliff” was reached the end of 2012, and, as our nation fell off the Fiscal Cliff, Congress passed the American Taxpayer Relief Act of 2012 (“ATRA 2012”) on January 1, 2013. The President signed ATRA 2012 into law the very next day. As has been widely reported, the “sequester” required spending cuts were only delayed for a couple of months, ATRA 2012 increases revenue to some extent, but also included many tax benefit “extenders” and special tax benefits for some taxpayers and their companies. However, in the estate and gift tax area and as to estate and succession planning in general, ATRA 2012 makes “permanent” (until more tax legislation is passed) the benefits of the Tax Relief Act of 2010, which was set to be repealed, in effect, January 1, 2013.

Owen Fiore, JD has been involved in estate and succession planning for nearly 50 years, including presenting webcast courses for CPE Link the past several years. See prior CPE Link Blogs authored by Owen October 2 and May 8, 2012. On January 24th he will present for CPE Link an updated version of his estate planning and family wealth succession webcast, titled Family Estate and Succession Planning: 2012 and Beyond. With a detailed outline, nearly 100 power point slides, and a special ATRA 2012-based outline on succession planning issues, participants will have an inside look at the important issues for tax practitioners and their clients to consider in 2013.

The only adverse element on estate and gift taxes in ATRA 2012 is the increase in the top transfer tax rate from 35% to 40%. Of singular importance is that the $5 million (adjusted for inflation since 2011) per person lifetime exemption is made permanent. Therefore, the many clients who failed to make substantial gifts in 2012 when it was believed the 2013 exemption would go down to $1 million, now have another opportunity to transfer wealth within the family – without tax! In addition, the TRA 2010 Portability Election also was made permanent by ATRA 2012. What does this mean? The answer is that any unused exemption level in the estate of the first spouse to die in a married couple situation, by proper election, can be used by the surviving spouse in addition to his or her own exemption. Therefore, it is critical to insure that estate planning documents take this election into account.

Finally, for the clients who made large gifts in 2012, there are important gift tax return reporting requirements to be met, including via the use of qualified valuation appraisals for “hard-to-value” assets, such as closely held corporate stock, FLP and LLC interests, and even co-tenancies in real estate.

Our “triple reason” for 2013 estate and succession planning remains: low asset values, low interest rates, and the possibility of new adverse tax legislation later in 2013.

Guest blogger: Owen Fiore