On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (ATRA). ATRA extends much of the prior tax laws, by extending tax acts passed in 2001 and 2010. ATRA also makes some changes to prior law. Much of ATRA is permanent, meaning it is not scheduled to expire. Select highlights of ATRA of particular interest to trust and estate attorneys, including changes to some key exemptions and rates, are summarized below.
Portability: The 2010 tax act included a provision allowing a surviving spouse to utilize the unused estate tax exclusion amount of the first spouse to die, if a timely election is made. This concept is referred to as portability. ATRA extends portability. The IRS has issued Treasury Regulations clarifying some aspects of portability. Also ATRA included a technical correction to make clear there is no “privity” requirement.
GST Tax: ATRA extends the generation-skipping transfer tax benefits that have been in place since 2001, such as qualified severances, automatic allocation of GST exemption to certain lifetime transfers, and 9100 relief.
Clawback: During 2011 and 2012 there was much discussion about whether there would be a “clawback” if the gift and estate tax exclusion amount dropped from the $5,120,000 amount applicable in 2012 to a lower amount in 2013. Since the exclusion amount did not drop, the clawback issue is moot.
IRAs: ATRA reinstates the ability for certain individuals to make tax-free distributions to charity from individual retirement plans. ATRA includes special transition rules in light of the fact that this benefit was not extended until after December 31, 2012. This provision of ATRA is not permanent. It applies to years 2012 and 2013, and then expires.
Colorado Estate Tax: With the passage of ATRA, the state death tax credit is still repealed. C.R.S. § 39-23.5-103(1) imposes a Colorado estate tax equal to the state death tax credit. Since there is no credit, Colorado continues to impose no estate tax. However, about half of the states do impose estate tax, and many of those states have an estate tax exclusion amount much lower than the federal level.