According to dictionary.com, permanent means “existing perpetually; everlasting, especially without significant change.” However, for federal tax law purposes, something is “permanent” only so long as Congress and the President do not act to change it. Take, for instance, the “basic exclusion amount” for federal gift and estate tax purposes. This is the amount that a taxpayer can give away during life or at death (or any combination of the two) before any federal gift or estate tax (“transfer tax”) will have to be paid on the transfer. The American Taxpayer Relief Act of 2012 (the “2012 Act”), signed into law by the President on January 2, 2013, made “permanent” the $5 million inflation-adjusted basic exclusion amount. The 2012 Act also made “permanent” a top marginal transfer tax rate of 40%. Yet less than 100 days after the President signed the 2012 Act into law, the Obama Administration released the “General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals” (the “General Explanations”). It appears that the Administration would prefer something less “permanent” with respect to the basic exclusion amount and the highest marginal transfer tax rate.

The Administration proposes returning to the federal transfer tax law in effect for 2009 for estates of decedents dying, and gifts made after, December 31, 2017. Thus, in just under five years, beginning in 2018, the highest marginal transfer tax rate would increase to 45%, the lifetime gift tax exclusion amount (i.e., the amount a taxpayer can give away during life) would fall to $1 million, and the estate tax exclusion amount (and generation-skipping transfer (“GST”) tax exemption amount) would revert to $3.5 million, with no indexing for inflation. The Administration’s proposal states that portability would continue and asserts that “no estate or gift tax would be incurred by reason of decreases in the applicable exclusion amount with respect to a prior gift that was excluded from tax at the time of the transfer” (so there will be no so-called “claw back” for lifetime transfers made in excess of $1 million). The “permanence” of the current exclusion amount and tax rates may depend heavily on the outcomes of the 2014 mid-term Congressional elections.

The Administration’s proposals would also affect the “permanent” nature of the exclusion from the GST tax for trust property. Under current law, once GST exemption has been allocated to trust property, the exclusion of the property from the GST tax is “permanent”, in the dictionary.com sense of the word. The Administration’s proposal would limit the “permanent” exclusion of trust property to 90 years from the date of the transferor’s first contribution of property to that trust.