March 13, 2013

After nearly a decade in flux, there is finally a permanent federal estate tax. In 2013, however, a mere 3,800 estates will be required to pay the tax. Moreover, the total amount paid by this small number of estates will only amount to $14 billion, which is a mere half of the total revenue from five years ago.

Prior to passage of the American Taxpayer Relief Act of 2012 (ATRA), the federal estate tax was in a state of constant flux. In 2001, the effective exemption was $675,000. The exemption amount jumped to $3.5 million in 2009. The ATRA has created the first permanent estate and gift tax in over a decade. As a result of this, wealthy Americans will be able to spend less time arranging gifts in anticipation of changing laws.

With the current exemption of $5.25 million, most estates – approximately 99.9 percent – will pass to beneficiaries tax-free. Large estates, however, now face a significant tax bill. For example, a $100 million estate will have to shell out approximately $5 million more in federal taxes.

As Forbes explains, the most important part of the ATRA is not the details of the taxes, but the fact that Congress has made the tax permanent. Although wealthy families are still likely to hire estate planning attorneys and financial advisors to create personalized estates that avoid taxes, the professionals that they hire will not have to face the challenges of a constantly changing rate.