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The much-discussed fiscal cliff regarding transfer taxes was averted when the American Taxpayer Relief Act of 2012 (“ATRA”) was enacted on January 2, 2013. While the details of the Act are still being analyzed, of note, ATRA provides that the exemption amount from the federal estate tax (regarding transfers at death in 2013 and thereafter) is $5 million (indexed for inflation). Similarly, for gifts made after 2012, the exemption amount from the federal gift tax is $5 million (indexed for inflation). In addition, the exemption amount from the federal generation-skipping transfer tax (which generally applies for transfers made during lifetime or at death to someone two or more generations below the transferor) is also $5 million (indexed for inflation). Such exemptions, as indexed, will be $5.25 million for 2013. ATRA also increased the top tax rate regarding all of these taxes from 35% to 40%.

Further, for deaths in 2013 and thereafter, ATRA extends the ability of a surviving spouse to elect to transfer any of their deceased spouse’s unused estate tax exemption amount to the surviving spouse (this is called “portability” of the unused exemption). This allows surviving spouses to apply this “extra”…