How the American Taxpayer Relief Act (ATRA) Affects Estate Planning

By Bobby Feisee, Ashburn Estate Planning Attorney

The “fiscal cliff” could have been a fiscal nightmare for people with sizable estates. For example, if we actually went over the cliff, the estate and lifetime gift exemption would have decreased from $5.12 million to $1 million, according to It would have also meant the possibility of reducing, or outright eliminating, legal wealth transfer strategies. Fortunately, Congress acted quickly after January 1, 2013 and passed the American Taxpayer Relief Act (ATRA). But you may be asking, “how does this affect my estate plan?” Good question. We discussed some of the implications for estate planning in our January 10 post, but we wanted to provide additional information for our readers.

Here are four important provisions of ATRA that affect estate planning:

1. The estate and gift tax rate will increase to 40 percent, a jump from 35 percent last year.
2. The exclusion amount for wealth transfer taxes is set at $5.25 million (while being indexed for inflation) and there is continued unification of all three wealth transfer taxes (estate, gift, and generation-skipping wealth transfer).
3. An increase in the annual gift tax exclusion – indexed for inflation – to $14,000. This is a $1,000 increase compared to last year.
4. An important provision allowing a deceased spouse’s unused exclusion or credit to be transferred to the living spouse was made permanent. As a result, a married couples has, as long as they file a Form 706 and plan appropriately, a combined exclusion amount of $10.5 million in 2013.

For more information about ATRA, check out this video from CNN Money:

Keep in mind, these are just highlights from the legislation. You should discuss with your estate planner the relevant provisions of ATRA that may affect your estate plan. In terms of general advice, you may also want to consider using a disclaimer trust or other strategies which would allow flexibility in deciding between the portability provision for couples and trusts. I mention this because the portability provision providing a spousal exclusion gives married couples a great tool for reducing or avoiding estate taxes. Though, this does not mean you should neglect utilizing a trust, which offer the flexibility to provide assets to future generations and generation-skipping, along with protection from creditors. Once again, take some time to sit down and meet with your estate planner to talk about ATRA’s ramifications on your estate plan.

About the Editors: InSight Law is an estate planning firm in Ashburn, Virginia (VA). The firm’s areas of practice include estate planning, business planning, trust and probate administration, assisting veterans and their family members with obtaining benefits, and medicaid planning. If you have questions, don’t hesitate to contact our office at 703-654-6019. We’re here to help.