A week ago, just as tax return preparers were finishing up tax returns for their clients and scrambling to get everything filed in time for the April 15 deadline, Pres. Obama released his 2014 budget proposals, which, as expected, included several tax increases related to the estate, gift, and generation-skipping transfer (GST) taxes. Less than four months after signing the last-minute, fiscal-cliff saving, new tax laws, Pres. Obama is proposing drastic changes. Remember, the American Taxpayer Relief Act of 2012 (“ATRA”), which was actually signed on January 1, 2013, made “permanent” changes to the transfer tax system because it removed any built-in “sunset” provisions for the new tax laws. As we can see, though, Pres. Obama considers “one year” about as “permanent” as he likes for the estate, gift, and GST taxes.
The main proposal related to our area of practice is Pres. Obama’s desire to increase transfer taxes by reducing the estate, gift, and GST exemptions from the current $5.25 million (indexed for inflation) and increasing the tax rate on those transfers. Pres. Obama wants the tax laws to revert to what they were in 2009 with an estate and GST exemption of $3.5 million, a lifetime gift exemption of $1 million, and a transfer tax rate of 45% (up from today’s “permanent” rate of 40%). There would be no index for inflation, so those levels would become even more onerous as time goes on.
In addition to wanting to increase these taxes, Pres. Obama’s proposals would also curtail several of the strategies we currently use for many of our clients, such as grantor trusts, dynasty trusts, and grantor retained annuity trusts (GRATs). His proposals would mostly come into effect only after new legislation has been passed, meaning that any planning done before his proposals are enacted would be “grandfathered” under the old rules. So, if you want to discuss strategies to reduce potential estate tax liabilities for your family, it is better to act sooner, rather than later, because “permanent” might not last forever. Give us a call at the Dana Law Firm at 480-515-3716 to schedule a free consultation with one of our attorneys.
Written by Attorney Trevor Whiting