2010 and 2012 were years of great change in the Oklahoma and federal estate tax systems.

No More Oklahoma Estate Tax (at least beginning in 2010)

The Oklahoma estate tax system has been permanently repealed for deaths occurring on or after January 1, 2010.

New Federal Estate Tax Legislation & Highlights

The federal act passed in December 2012 to deal with the so-called “fiscal cliff” included changes to federal estate, gift, and generation-skipping transfer (“GST”) tax laws and income tax laws that will affect estate planning for the foreseeable future.  The act is named the American Taxpayer Relief Act of 2012 (“ATRA”). 

Here is a brief review of those changes and how they may affect you.

Changes to the Federal Estate Tax Law

 •  The federal gift, estate and GST tax provisions that had been put in place as temporary measures in December 2010 were made permanent as of December 31, 2012.  This is great news because, for more than ten years, we have had uncertainty due to the fact that the estate, gift, and GST exemptions and rates and basic income tax provisions and rates all had expiration dates.  And while “permanent” in Washington only means this is the law until Congress decides to change it, at least we now have some certainty with which to plan.

•  The federal estate and gift tax exemption will remain at $5 million per person, adjusted annually for inflation after January 1, 2011. In 2012, the exemption (with the adjustment) was $5,120,000. The amount for 2013 is $5,250,000. This means that the opportunity to transfer large amounts during lifetime or at death remains.

Planning Tip: If you did not take advantage of the $5+ million gift tax exemption in 2011 or 2012, you can do so now, with proper planning.  With the exemption amount now tied to inflation, you can expect to be able to transfer even more each year.

•  The Generation-Skipping Transfer (GST) tax exemption also remains at the same level as the gift and estate tax exemption ($5 million, adjusted for inflation).  The GST tax, which is in addition to the federal estate tax, is imposed on amounts that are transferred (by gift or at your death) and “skip” a generation, for example, a gift to a living child’s descendant.

Planning Tip: Having this permanent GST exemption will allow you to take advantage of planning that will greatly benefit future generations, for example, a properly-established dynasty trust.

•  Married couples can take advantage of these higher exemptions and, with proper planning, transfer up to $10+ million through lifetime gifting and at death.

•  The tax rate on estates larger than the exempt amounts was increased from 35% in 2012 to 40% in 2013 and beyond.

•  The “portability” provision was also made permanent. This allows the unused exemption of the first spouse to die to transfer to the surviving spouse, under certain conditions.

•  Separate from the new tax law, the amount for annual tax-free gifts (also known as the “annual exclusion”) has increased from $13,000 in 2012 to $14,000 in 2013 as a result of an inflation adjustment.  This means you can now give up to $14,000 to as many individuals as you wish each year and not pay a gift tax.  If you are married, your spouse can join you and, together, you can give up to $28,000 per person per year.

Planning Tip: Annual tax-free gifts are in addition to the $5+ million gift and estate tax exemption. This is another opportunity to transfer significant amounts out of your estate if that is a desired plan.

Changes to the Federal Income Tax Law

In addition, ATRA made many changes to the federal income tax laws, including several income tax increases that may be mitigated by proper planning:

•  The 2% Social Security tax holiday that was instituted as a stimulus measure was not extended. So, workers will see a decrease in net pay.

•  Ordinary income tax rates increase from 35% to 39.6% for singles earning more than $400,000 a year ($450,000 a year for married couples).  All other ordinary income tax rates effective in 2012 were made permanent.

•  There is a new Medicare 0.9% surtax on ordinary income and a new 3.8% surtax on investment income. Both are applicable to income over $200,000 for singles ($250,000 for married couples) and were part of the 2010 health care bill.

•  The top capital gains and dividend rate increased to 20% for those earning more than $400,000 a year ($450,000 for married couples).

•  The AMT exemption is now permanent. For 2013, it increased to $50,600 for single and to $78,750 for married taxpayers, with the exemption and phase out amounts indexed.

•  Several business provisions were extended, including the R&D tax credit, work opportunity tax credit, accelerated depreciation, and Section 179 levels. (Business owners will want to consult their CPAs for advice.)

•  The direct IRA to charity transfer for those over 70.5 years of age was reinstituted retroactive to 2012. A special catch-up rule allows transfers in January 2013 to be counted as 2012 distributions.

The Need for Proper Planning Remains

For most Americans, this tax legislation has removed the emphasis on estate tax planning and put the emphasis back on the real reasons we need to do estate planning: Taking care of ourselves and our families.  Proper estate planning is still essential for many of the primary goals of estate planning.

For Those with Larger Estates

Ample opportunities remain to transfer large amounts tax-free to future generations.  But with the increase in estate and income tax rates, it is critical that professional planning begins as soon as possible.


For more information and helpful Planning Tips, please read this issue of The Wealth Advisor to see how these changes may affect your estate planning.

We are ready to help you define your estate planning goals and desires and take advantage of these unique planning opportunities. Contact us for more information about how to proceed.

(The above information was excerpted from Volume 7, Issue 1 of The Wealth Advisor, a publication of The Advisor's Forum, of which Forrest Danley, Attorney is a member.)