Need-To-Know Estate-Tax Modifications of 2013

On January 1, 2013, Congress saved large portions of the Estate and Gift Tax. If Congress had not acted, the $5,125,000 exemption would have been reduced to $1 million, opening up many families of decedents to additional taxes. Furthermore, the tax rate was capped at 40% for 2013. Had the January 1, 2013 legislation failed, the rate would have been 55%. In 2013, it is estimated that less than 1% of all estates will owe any federal estate tax.


The legislation passed on January 1, 2013 provides that the exclusion of $5,000,000, plus annual adjustments for inflation, shall remain in effect. The exclusion for estates of decedent’s dying in 2013 is $5,250,000. The exclusion has increased $130,000 since 2012.

The annual exclusion for gifts is $14,000 per donee, meaning a taxpayer can give up to $14,000 to an individual per year without using any of their estate exclusion amount. This amount is in an increase of $1,000 from 2012.

The generation skipping tax exclusion (gifts to grandchildren and lower lineal descendants) was mirrored with the estate tax exclusion of $5,250,000.

Portability of Spouse’s Unused Estate Tax Exclusion

Though not a new provision, the —Portability of Deceased Spousal Unused Exclusion (DSUE) was made permanent on January 1, 2013. This feature is an important estate tax provision for married individuals. It was added to Form 706 United States Estate Tax Return for 2013.

In the past, when one spouse would die, the decedent’s estate could be passed tax free to the surviving spouse. However, when the second spouse passed, the second spouse could not use the prior spouse’s estate tax exclusion. To utilize the prior spouse’s estate tax exclusion, elaborate “by-pass” trusts were created. These trusts are no longer needed.

Now, when the second spouse dies, the estate can utilize the unused portion of the first spouse’s exclusion. There is a catch, however. Now, an estate tax return, Form 706, must be timely filed, whether or not any tax is due, in what is normally called an informational return.

Estate tax returns are due within 9 months of the date of decedent’s death. A timely extension, if filed, is permissible to gain an extra 6 months to file the return. After that time, the surviving spouse may waive the right to use the former spouse’s unused estate lifetime exclusion.

In other matters, a Schedule PC Protective Claim for Refund has been created for the Estate Tax Return. This schedule is used to put the IRS on notice that any estate tax paid during a dispute or controversy does not waive a right to a refund should the taxpayer win the dispute.


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