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CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2013
CCH Whole Ball of Tax
is available in print. Please contact:
Leslie Bonacum
(847) 267-7153
Eric Scott
(847) 267-2179
Brenda Au
(847) 267-2046

Visit the CCH Whole Ball of Tax site often as new releases and other updates will be posted
throughout the tax season.

CCH provides special CCH Tax Briefings on key topics at

2013 CCH Whole Ball of Tax
Release (08) | Back to WBOT

2013 CCH Whole Ball of Tax

Leslie Bonacum
, 847-267-7153,
Eric Scott , 847-267-2179,
Brenda Au , 847-267-2046,

CCH Says Latest Tax Law Brings Some Certainty Back to Estate Tax Planning, But Decisions Remain

CCH Reviews Estate & Gift Tax Law Changes, How Portability Works

(RIVERWOODS, ILL., January 2013) – After years of changes to gift and estate tax rules, the American Taxpayer Relief Act of 2012 (ATRA) brings some certainty back to estate tax planning, but by no means makes estate planning simple or writes the last chapter in changes, according to CCH, a Wolters Kluwer business and a leading global provider of tax, accounting and audit information, software and services (

“The new law provides for a new permanent top tax rate and also makes portability permanent,” said CCH Senior Estate Tax Analyst, Bruno Graziano, JD, MSA. “But some estate tax planning tools may offer limited opportunities in future years as tax saving vehicles for higher income earners come under greater scrutiny.”

Specifically, under the ATRA, for 2013 onward, the maximum federal estate, gift and generation-skipping transfer (GST) tax rate increases to 40 percent for 2013 and beyond (compared to 35 percent for 2012); the $5 million inflation-adjusted exclusion available in the past three years remains intact; and portability, which allows a surviving spouse to use the unused portion of his or her deceased spouse’s gift and estate tax exclusion and has been available to estates since 2011, is now permanent.

Without the ATRA, the estate tax after 2012 would have returned to a maximum rate of 55 percent; the exclusion would have been $1 million (not adjusted for inflation), with a 5-percent surtax applied to large estates, in excess of $10 million up to $17,184,000, and portability would have been repealed.

Finalizing Estate Planning for 2012

The immediate effect of the ATRA is that it now allows for surviving spouses of individuals dying in 2012 to make decisions concerning portability and whether or not to file an estate tax return (Form 706) knowing that portability will not be going away. Estates have up to 9 months after a person dies to file an estate tax return and can request a six-month extension.

Estates that fall below the exclusion amount are not required to file Form 706, but in order to make the portability election, they must do so. The inflation-adjusted exclusion amount for 2012 is $5.12 million. As a result, the portability election could exempt up to $10.24 million from estate and gift taxes in 2012.

For example, if one spouse died in 2012 after only using $2.5 million of his exclusion for lifetime gifts, his wife would still have her $5.12 million exclusion (or a higher amount depending on the inflation adjustment in the year of her death) as well as the remaining $2.62 million of her husband’s exclusion, which is not indexed for inflation beyond the year of his death. The remaining exclusion would also be available to the surviving spouse for gift tax purposes.

“Without the ATRA, the estate tax exclusion would have just been $1 million and portability would have been repealed as of 2013,” said Graziano. “As a result, many surviving spouses were waiting to see if it would make sense to file a federal estate tax return.”

While the permanency of portability may cause some spouses to consider filing an estate tax return to claim portability, many estate planners believe more traditional strategies may be more effective.

“The estate tax return form is very lengthy, with multiple schedules and involves valuation issues and complex tax laws that can make it very cumbersome and expensive to complete,” said Graziano. “Someone who is not likely to exceed their own exclusion amount would probably not want to go through the expense.”

Additionally, other limitations of portability can include:

  • It is not indexed for inflation. As a result, a spouse who survives considerably longer could see assets worth $3 million, for example, more than double. As a result, any in excess of the estate tax exclusion could be taxed as high as 40 percent starting in 2013.
  • Additional marriages complicate matters. If a spouse remarries or has additional children, he or she can decide where the property will go; which may not be the same intentions of the decedent spouse.
  • Assets are not protected from creditors.

“Some estate planners favor using credit shelter trusts to address these issues,” said Graziano. “But establishing and maintaining these can also be costly.”

Estate Planning for 2013 and Beyond: Clear for Now, But Certain Tools May Become Limited

The $5.12 million estate tax exclusion for 2012 is inflation-adjusted and increases to $5.25 million for 2013. The annual gift tax exclusion also increases for 2013 to $14,000 per donee or $28,000 per couples using gift splitting (the 2012 figures had been $13,000 per donee and $26,000 per couple).  

While this means more estates may be shielded from estate taxes, many lawmakers are looking at ways to minimize the use of some estate planning tools implemented to further reduce estate taxes. For example, the Administration’s revenue proposals for fiscal year 2013 had targeted Grantor Retainer Annuity Trusts (GRATs) and Family Limited Partnerships (FLPs).

While these techniques were not affected for fiscal year 2013, they could be targets again in future revenue-raising proposals. However, estates that move to establish them now, will likely be able to continue to use them.

“If proposals to limit these tools succeed, it’s likely that estates already using them would be grandfathered in, which will ensure that estate tax planning will be a top priority for many wealthy families in 2013,” said Graziano.

Developments in State Estate Taxes Continue to Shift

Most states follow federal estate tax and would have seen a windfall to state coffers had the estate tax sunset to the pre-Bush era maximum 55-percent tax rate on estates over $1 million. However, even though that did not happen, some states have decoupled from federal estate tax law over the past several years as a way of holding onto tax revenues. In many of these states, residents can expect to pay taxes on estates well below the $5.25 million federal threshold for 2013 ($5.12 million for 2012).

“States that have stayed with the federal estate tax law, assuming it would be returning to the lower exclusion amounts, may now reconsider,” said CCH Estate Planning Analyst James C. Walschlager, MA.

States currently following the pre-Bush era estate tax provisions include: Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Rhode Island and Vermont as well as the District of Columbia. Only Delaware, Hawaii and North Carolina follow the federal estate tax exclusion threshold. A few other states have enacted their own estate tax law separate from federal law. These include Connecticut, Oregon and Washington, as well as effective January 1, 2013, Maine. Ohio repealed its standalone estate tax and has now recoupled with the federal estate tax law effective as of 2013.

Four states and the District of Columbia also allow domestic partners to file joint tax returns. This allows the partners to be recognized under their state’s estate tax laws and thereby enables the surviving spouse to avoid paying any taxes on the decedent’s estate.

Three states have no estate tax at all. These are Kansas, Oklahoma and Arizona.

In addition to estate taxes, eight states also collect an inheritance tax. This is a tax on the portion of an estate received by an individual. It is different from an estate tax, which taxes an entire estate before it is distributed to individual parties. These states are Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee ‒ which is phasing out its inheritance tax in 2015. Assets transferred to a spouse are exempt from the inheritance tax, and some states exempt assets transferred to children and close relatives.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business ( is a leading global provider of tax, accounting and audit information, software and services. Celebrating its 100th anniversary in 2013, CCH has served tax, accounting and business professionals since 1913. Among its market-leading solutions are the ProSystem fx® Suite, CCH Integrator™, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer ( is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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