In late 2012, as attorneys and CPA's surveyed the possible effects of the Congressional stalemate, their mood could best be described as somewhere between panic and depression. At symposiums across the nation, the most dire predictions were forecast. This was not entirely without reason as the Estate tax exclusion being reduced to $1,000,000, the Estate tax rate being raised to 55%, and the establishment of a new 3.8% "health care tax" were all realistic possibilities. Fortunately, none of them materialized, and the actual effects on estate planning are probably beneficial in that they finally provide some predictability for future law in this area.
Congress acted to make permanent many of the features of the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. Under this Act, the highest gift tax bracket was reduced to 35%, and the exemption increased to $5,000,000. Had Congress not taken any action, this Act would have expired on December 31, 2012, and the fears of estate planners outlined above would have become a reality. Congress did increase the gift tax rate to 40% - undeniably a steep sum. The gift tax exclusion was increased for inflation to $5.12 million per individual. Married couples can exclude $10.24 million provided they meet certain filing requirements upon the first spouse's death.
One other change for 2013, is that the annual gift tax exemption has been set at $14,000 per individual ($28,000 per married couple). This amount can be given outright and will not count against the $5.12 million exemption.