< Back to Our Insights


While they clearly had to surrender ground in other areas, taxpayers subject to estate tax can take solace in the fact that their lifetime gift and estate tax regime has become permanent, with only minor changes from what was in effect for 2012. An agreement has been reached, and is expected to be signed, to maintain the current estate tax regime at a $5 million exemption (indexed for inflation) and a top tax rate of 40% — only a slight deviation in the rate from the previous “best deal ever,” which had the same exemption and a 35% rate.

In addition, the act solidifies the unification of the gift and lifetime exemption, as well as the portability features that were scheduled to fade away.

For those individuals who planned for the expiration…

Taking advantage of what was written as a temporary provision in estate tax law can hardly be considered a misstep. At worst, you’ve likely only undertaken a gifting program when you were only “substantially” ready versus “completely” ready — hardly reason enough to gamble on the probability that the legislations didn’t get extended. Plus, because the top rate rises from 35% to 40%, you have probably saved enough in estate taxes to justify the commitment to gifting a bit early, if that was where you found yourself.

That being said, you have now been granted adequate time to do more thoughtful and comprehensive planning — luxuries which may have been glossed over in the interest of a time crunch. Going forward, it’s important that you review the actions that you’ve taken prior to year-end 2012. It makes sense to involve your accountant, estate planner and investment advisor in these discussions, as all must be working with the same set of facts and understand the actions that each of the other parties are undertaking.

For those individuals who knew this extension was coming …

We figured it would get extended in some regard similar to the 2012 levels, but certainly wouldn’t have been willing to wager millions of dollars in potential estate tax savings on that prediction. If you did — you were right this time, but in some regards all you’ve bought yourself is additional time. If the estate tax applied to you in 2012, it will apply to you in 2013 and forward as well.

But you’ve also gained the benefit of some clarity. Once the bill is signed into law, it means that you can count on these provisions going forward — which certainly wasn’t an option even a few days ago. Take the time now to reflect on your position, and plan with your advisors what you will need in the way of financial assets in order to feel secure. You’ve also gained clarity on what income taxing regimes will be going forward, influencing the amount of assets that you will require to support your lifestyle, and consequently, how much you can part with through gifting or donation strategies in the interest of reducing the estate tax burden. Proceeding with a well-developed gifting program, protecting your assets via proper trusts, and structuring charitable bequests each may be able to further your goals, while also reducing your estate tax exposure. Congress was generous enough to confirm your foresight, so now take advantage of the gift by ordering your affairs to minimize any remaining estate tax.

Paul Rozek

As a reviewer in the tax department, Paul Rozek is experienced in the preparation and review of all tax returns, including Forms 990 and 990-T. His clients include family offices, private foundations, trade associations, charitable organizations, schools, credit unions and other non-profit entities.