President's 2012 Budget Proposals Include Permanent Estate and Gift Tax Reforms

In a release dated February 14, 2011, entitled “General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals”, the Treasury Department explained how the President's 2012 budget proposals contain several important changes in the estate, gift, and GST taxes. These changes include:

• Restoring the 2009 estate, gift and GST tax rules on January 1, 2013. These would include a top estate, gift and GST tax rate of 45 percent, a $1 million gift tax exclusion, and a $3.5 million estate and GST basic exclusion amount;
• Making portability of the deceased spousal unused exclusion amount permanent;
• Require consistency in valuation for income and estate tax purposes, so that beneficiaries were required to use estate tax values to determine the adjusted basis of property received from a decedent;
• Permit the Treasury to issue regulations that expand Code Sec. 2704(b) , to ignore in valuing partnerships, LLCs, and other entities, a new category of “disregarded restrictions,” so as to reduce the use of valuation discounts for such entities;
• Require a minimum ten-year term for GRATs, require a positive value to the remainder interest in a GRAT, and prevent the use of decreasing payments in a GRAT; and
• Provide that the allocation of GST exemption to a transfer protects that transfer from GST tax for no more than 90 years.

If adopted in 2013, these changes would provide much-needed clarity in the areas of estate and gift tax. Even now, it is helpful to know that the estate tax exclusion amount will probably not drop below $3.5 million.