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T H E P R I M E R U S P A R A D I G M
Eliot S. Nahigian is a partner in the transactions department. He
represents clients in business and personal transactions including
advising and forming business entities and estate planning. He
is certified by the State Bar of California as a specialist in estate
planning, trust and probate law and taxation. Mr. Nahigian is also a
certified public accountant.
Coleman & Horowitt, LLP
499 West Shaw Avenue, Suite 116
Fresno, California 93704
559.248.4820 Phone
559.248.4830 Fax
www.ch-law.com
enahigian@ch-law.com
Eliot S. Nahigian
Estate plans for couples and individuals
should be reviewed and revised because
of The American Taxpayer Relief Act of
2012 (the "Act"). The Act, enacted on
January 1, 2013, to avert the so-called
"fiscal cliff," contains a number of
significant estate and gift tax provisions
including:
A unified estate and gift tax exclusion
of $5,000,000 indexed annually for
inflation. For decedents dying after
December 31, 2012, the exclusion
amount, as adjusted for inflation, is
$5,250,000 per individual.
The Act also made permanent
"portability" between spouses.
Portability essentially allows the
unused estate tax exclusion of a
deceased spouse to be used by the
surviving spouse.
The Act also provides for a 40%
estate and gift tax rate on the estate
in excess of the exclusion amount of
$5,250,000.
Prior to the Act, a typical estate plan for
a husband and wife involved a trust that
was created during the couple's lifetime.
Upon the death of the first spouse, the
trust was either divided into two trusts
(an A Trust and a B Trust) or divided into
three trusts (an A Trust, and a B Trust,
and a QTIP Trust).
In a typical AB Trust plan, on the
death of the first spouse, the deceased's
share of the estate, but not more than the
exclusion amount, would be held in an
irrevocable trust (often referred to as the
"exemption trust" or the "bypass trust")
for the benefit of the surviving spouse,
and the rest of the estate would continue
to be held in a revocable trust for the
benefit of the surviving spouse.
In a typical AB Trust plan, there
was no estate tax due on the death of
the first spouse, and the amount held
in the exemption trust was not subject
to estate taxes on the death of the
surviving spouse. The surviving spouse's
share of the estate that was held in the
revocable trust for the benefit of the
surviving spouse (sometimes called
the "A Trust" or the "Survivor's Trust")
would be subject to estate tax and an
estate tax would be due if the value of
the survivor's estate exceeded the estate
tax exclusion in effect on the death of the
surviving spouse.
As a result of the Act and the
$5,250,000 estate tax exclusion and
portability, most couples will not need
to use an exemption trust to prevent an
estate tax from being imposed. A couple
with a combined estate of not more than
$10,500,000 can retain the deceased's
share of the estate in a revocable trust,
elect portability on the death of the first
spouse, and leave their entire estate to
their children estate tax free on the death
of the surviving spouse without using an
exemption trust if the entire estate does
not exceed $10,500,000 on the death
of the surviving spouse. An estate tax
return on the death of the first spouse is
required to elect portability.
Estate Plans Should be Reviewed and
Revised as a Result of the Fiscal Cliff
North America