On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012. Among other things, the Act offers, for the first time in over a decade, “permanency” to the nation’s estate, gift, and generation-skipping transfer tax laws.
By way of background, in 2001 Congress passed the Economic Growth and Tax Relief Reconciliation Act. Over a 10-year span, this law significantly increased the amount that taxpayers could transfer free of tax and simultaneously lowered the effective tax rates applicable to gratuitous transfers. However, this law was scheduled to expire at the end of 2010, at which time the applicable exemption amounts and the tax rates were to revert to their pre-2001 levels. In 2010, President Obama struck a two-year deal with Congress that raised the exemption amount to $5 million and lowered the transfer tax rate to 35 percent. But this law, too, was supposed to expire at the end of 2012, and the pre-2001 exemption amounts and tax rates were scheduled to return.