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Bar Association of San Francisco Member Benefits: PublicationsThe Changed Legal Services Landscape

Estate Tax Reform Simplified


By John O’Grady, O’Grady Law

The federal estate tax remained unchanged for many years until 2001, when lawmakers started debating it. Until recently, they could not agree, so they compromised by devising temporary solutions, each with an expiration date. The chaos that resulted from a constantly changing estate tax landscape brought a great deal of uncertainty to the estate planning process. Beginning in 2013, thankfully, we have no expiration date and far more certainty about how to implement strategies to plan for the estate tax.
The exclusion from estate, gift, and generation skipping tax (tax on gifts made to the younger generation, like grandchildren, so that there is a estate tax to pay at the death of each generation) is now $5 million, indexed for inflation (approximately $5.25 million in 2013). A married couple can transfer $10.5 million tax-free. This is the largest exemption amount ever. The estate tax rate, for estates subject to the tax, was increased from 35% to 40%.

The annual gift tax exclusion amount has increased from $13,000 to $14,000 due to an inflation adjustment.

Portability—the ability of a surviving spouse to use the unused estate tax exclusion of a deceased spouse—was made permanent. Portability is usually not the best available tax planning. The documents we draft provide for flexibility so that the trustee can choose between traditional estate tax planning and portability when the time comes.

Despite much talk about closing “loopholes,” the rules for planning with grantor-retained annuity trusts (GRATs), valuation discounts, and intentionally defective grantor trusts (|DGTs) were not changed. Tax planning in almost every trust should be reviewed in light of the new law.


John O‘Grady promotes leadership in families through estate planning conversations about the unspeakable. John may be reached at (415) 986-8500 or He is the Immediate Past Chair of BASF’s Estate Planning, Trust & Probate Section.

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