Wealth Management Group Newsletter – Fall 2012
Steven Lewis

Changes to Federal Estate and Gift Tax Law Around the Corner – Rules to Change for 2013


The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 significantly changed federal estate and gift tax laws including:

  • Increasing the federal estate tax exclusion from $3.5 million to $5.12 million.
  • Increasing the gift tax exemption from $1 million to $5 million.
  • Reducing to 35% the maximum tax rate that applies to the taxable portion of a decedent’s estate or donor’s taxable gifts.
  • Providing for portability, or the transfer of the unused portion of the exclusion for estates of people that have died in calendar years 2011 and 2012, to a surviving spouse.

These rules are once again scheduled to change on January 1, 2013, unless Congress acts before year-end. If it does not act, the laws will change as follows:

  • The estate and gift tax exclusion will be reduced to only $1 million.
  • The current flat tax rate will be replaced with a progressive structure reflecting rates up to 55%.
  • Portability will no longer apply.

It is anticipated that Congress and the President might act, but in what way no one knows. The fact that the IRS issued regulations regarding portability in June of this year makes many think that this provision is favored and may not change, but this is only a guess.

Other proposals for 2013 include:

  • Elimination of valuation discounts.
  • Minimization of all grantor retained annuity trust (GRAT) terms to at least ten years.
  • Limit the generation-skipping tax (GST) trusts to 90 years.

Taxpayers should be taking advantage, before year-end, of the favorable provisions. Most taxpayers should be reviewing their existing plans (wills and trust documents) because of the new changes since 2010, and the possibility of changes in 2013.

We are happy to assist you — give us a call at 312.670.7444 to talk to one of our advisors.

It’s Time for Your Financial Review



With many key tax breaks set to expire and additional taxes scheduled for 2013, you need to begin planning ahead for the many changes that may be effective in 2013. Planning ahead will help you take advantage of any tax breaks in 2012. These tax breaks include:

Long-Term Capital Gains

The maximum tax rate on capital gains, or profits on investments held for more than one year, is set to increase from 15% to 20% on January 1. Currently, the capital gains tax rate is zero (subject to income limitations) for those investors in the 10%-15% ordinary income tax brackets, but this low rate is scheduled to be eliminated in 2013.

Ordinary Income Tax Rates

Ordinary income tax rates range from 10% to 35% and remain unchanged through December 31. However, unless Congress elects to extend current rates, the rates will rise in 2013 to pre-2001 levels, with a top rate of 39.6%. Legislation has been introduced to create a minimum tax on those reporting over $1 million in income to be effective in 2013.

Surtax on Investment Income

Beginning on January 1, 2013, a new 3.8% Medicare surtax is imposed on the lesser of net investment income or the excess of modified adjusted gross income over the “threshold amount” ($250,000 for married filing jointly; $200,000 for single). This may provide incentive to accelerate income into 2012 rather than deferring income to 2013 or beyond.


In 2012, the maximum allowable pre-tax contribution to employer-sponsored retirement plans – including 401(k) and 403(b) plans – increased from $16,500 to $17,000. On the other hand, contributions for IRAs were unchanged in 2012. However, the Roth IRA income phase-out range increased, meaning more high-income filers could be eligible to take advantage of these accounts. The contribution phase-out range increased to between $173,000 and $183,000 for married couples filing jointly, while the single filers range is now between $110,000 and $125,000.


In recent years, the AMT rules have permitted an exemption from the AMT, which has been raised annually. But, as the law currently stands, all previous adjustments to the AMT exemption were eliminated. This means that the AMT exemption for income earned in 2012 will drop from $74,450 to $45,000 for joint filers, and from $48,450 to $33,750 for single filers. In the past, Congress has retroactively raised the AMT exemption and can do so again in 2012. Those exemptions typically have been increased during the tax year they were effective, and Congress has waited until as late as December to pass an increase.

While there is no crystal ball that can predict what Congress will or will not do, it’s necessary that you stay informed and take advantage of existing tax breaks before the end of the year. One easy way to ensure that you’re headed in the right direction is to schedule a complimentary review of your current financial and tax strategies with us today at 312.670.7444.


The general information provided in this publication is not intended to be, nor should it be, treated as tax, legal or accounting advice. Additional issues may exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented in this newsletter. This information is not intended to be, nor can it be, used by any taxpayer for the purpose of avoiding tax penalties.

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