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The President's Proposed Budget (among other things) Reduces the Gift Tax Exemption from the Current $5.25 Million to $1 Million
Maurice Kassimir & Associates, P.C.
The President's Proposed Budget (among other things) Reduces the Gift Tax Exemption from the Current $5.25 Million to $1 Million
On April 10, 2013, President Obama presented his 2014 budget. Although Congress passed the American Taxpayers Relief Act of 2012 just a few short months ago, the President's new budget proposal aims to decrease the estate, gift and generation-skipping transfer (GST) tax exemptions back to their 2009 levels.

The following is a summary of the provisions of the Presidentís proposed budget that relate to estate and gift taxation and a brief summary of important estate planning techniques that are currently still available.

  1. The gift tax exemption would return to $1,000,000.
  2. The estate and GST tax exemptions would return to $3,500,000.
  3. The maximum estate, gift and GST tax rate would be increased from 40% to 45%. The 45% rate is reached at a taxable estate or cumulative lifetime gifts of $1,000,000. The highest combined federal and state estate tax rate for New York and New Jersey residents would be approximately 55%.
  4. The annual exclusion would be decreased to $13,000 per donee or $26,000 for a married couple who elect to gift split on their gift tax returns (the current exclusion is $14,000 per donee or $28,000 for a married couple who split gifts).
  5. Portability of any unused estate tax exemption between spouses would remain permanent, with the only difference being that the maximum amount that could be used is reduced to $3,500,000. This rule allows the unused estate tax exemption of a decedent to be transferred to a surviving spouse. As a result, all wills and living trusts should be reviewed to determine if the documents are sufficiently flexible to allow for a full deferral of New York or New Jersey estate taxes until the death of the surviving spouse (provided a full deferral is warranted under your individual circumstances).
  6. Many states have limits on the number of years trust assets can remain exempt from the GST tax. The President's budget proposal would cap the time limit at 90 years. States such as Alaska, Delaware, South Dakota and Nevada which have revoked the Rules Against Perpetuties allow for the creation of "Dynasty Trusts". Under the proposed law, these trusts would not be as advantageous as they currently are from a GST tax and asset protection standpoint. If enacted, this rule would be effective for all trusts created after it is passed. If you have been considering creating a dynasty trust for GST tax or asset protection reasons, it may be wise to execute it soon.
  7. Under the proposal, the sale of assets to a grantor trust by the grantor may not remove those assets from the grantor's estate. While sales to grantor trusts typically have no income tax consequences, the proposed rule would aim to include any assets sold to a grantor trust in the grantor's estate when he/she passes away. This provision would have the most onerous estate planning consequences because a sale to a non-grantor trust is a taxable event.
  8. The minimum term for a grantor retained annuity trust ("GRAT") would be 10 years. If enacted, this rule would go into effect immediately. However, with interest rates still at historically low levels, a GRAT can still be a great planning tool.
Regardless of the final outcome, it is important to understand what may or may not change, and begin to think of ways to plan accordingly. For those who did not make substantial gifts in 2012, there is still a window to assess the advantages of doing so in light of personal goals and objectives, but it may not stay open forever.

In any event, all estate plans MUST be reviewed to determine whether changes to your will should be made and whether additional planning is warranted, especially if some of these proposals are enacted. We recognize that estate planning generally benefits the next generation and beyond, and not the planner. However, not only it is important to have oneís affairs in order at death, most clients prefer that their heirs be the primary beneficiaries of their estate. Without planning, the government may take as much as 50% of your estate assets. Now more than ever, trusts are essential to ensure that tax efficient wealth transfers can be accomplished and that your heirs and not the government are your primary beneficiaries.

Maurice R. Kassimir, Esq.
Maurice Kassimir & Associates, P.C.
(212) 790-5719
As required by new U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this email, including attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.


If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us: mkassimir@mkpclaw.com.

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