WHAT THE GOVERNMENT GIVITH, THE GOVERNMENT CAN TAKE AWAY!…. A NEW DEFINITION OF THE WORD “PERMANENT”
'When I use a word,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean - neither more nor less.' Lewis Carroll
Just three and a half months ago, Congress and the President heralded the American Taxpayers Relief Act of 2012 as one that made “permanent” the Federal Estate, Gift and Generation Skipping Tax rates and their respective exemptions. In its 157 pages, the Act made permanent a $5,000,000 exemption per person from the estate, gift and generation skipping tax (“GST”), inflation-indexing of the Estate and Gift tax ($5,250,000 for 2013), and “portability” of these exemptions between spouses. It also fixed the top estate, gift and GST tax rate at 40% as compared to 35% previously.
This week, in its proposed budget, the Administration suggests that it is appropriate to re-define the meaning of the word “permanent” and take taxpayers back to the tax regime that was in existence in 2009. In that year, the top tax rate was 45 percent and the exclusion amount was $3.5 million for estate and GST taxes, and $1 million for gift taxes. Under the Administration’s proposal, there would be no indexing for inflation. Portability would still be permitted and transfers made prior to the reduction in the exemption amounts would not be subject to additional taxes. This proposal would be effective for new estates and transfers after December 31, 2017.
This probably is just the opening act of more debates, dramas in Washington, and continued uncertainty that defines our country today. Sadly, and more importantly, the Administration's proposals potentially take us back to having tax issues rather than how to leave a good legacy for your family as the key topic in estate planning.