The Trust Lawyers Blog

2013 Budget Proposal: Changes To Your Income, Gift, And Estate Tax

Posted by Dave DePinto on Tue, Mar 06, 2012

In February, President Obama unveiled his 2013 budget proposals for the nation's finances. One aspect of his budget that needs highlighting, however, is a series of fairly extensive overhauls to the country's tax laws, including significant changes to gift, estate, and income tax rules that are largely unfavorable to those with significant wealth.

While the chances of Obama getting his 2013 budget proposals past a Republican-controlled Congress unchanged are slim (at best), you should still be familiar with the changes he's proposing. Here are some of the important points that people currently planning their estates should be aware of:

Lowered Gift and Estate Tax Exemptions. President Obama would roll back the exemptions to their 2009 levels, meaning the estate exemption drops to $3.5 million (from $5 million), and the gift exemption is only $1 million.

Lengthens the minimum term for Grantor Retained Annuity Trusts (GRATs). Under the 2013 budget proposals, a GRAT would have a minimum term of ten years, making it less likely that a grantor will survive them. It would also eliminate zeroed-out GRATs, reducing their ability to be used to avoid gift taxes.

Limits the duration of generation-skipping trusts. Any sort of dynasty trust designed to last over multiple generations would be limited to 90 years, then taxed.

Merges Income and Estate tax rules. Could mark the end of Intentionally Defective Grantor Trusts.

Brings back higher tax brackets.
At the upper end of the scale, the 36% and 39.6% tax brackets would return, and qualified dividends would no longer be taxed at 15%.

The capital gains tax would return.
Capital gains would increase to a 20% rate.

In short, if you are currently planning your estate, you probably want to work on getting those gifts and trusts set up before the end of 2012. Even with the Republicans running Congress, with the current public sentiment showing sympathy for these sorts of policies, it's likely at least some of these 2013 budget proposals will end up getting passed.

(Photo Credit: Budgeting by RambergMediaImages)

Tags: Estate Law, Income Tax