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On New Year’s Day, Congress reached a deal that was subsequently signed into law by President Obama creating the American Taxpayer Relief Act of 2012. This law set both the estate and gift tax exemptions at $5 million, indexed for inflation, and created a top estate and gift tax rate of 40%. The act provided “permanent” laws for estate and gift taxes, meaning only that they wouldn’t expire.

This April, just a few short months after the estate and gift tax was made “permanent,” the President submitted his 2014 revenue proposals (Treasury’s explanation of these proposals are known as the Greenbook).  Included in the revenue proposals are significant changes to the estate and gift tax beginning in 2018, returning them to the 2009 levels. President Obama proposes reducing the estate tax exemption to $3.5 million and the gift tax exemption to $1 million, without allowing either to be indexed for inflation. Further, he proposes raising the top estate and gift tax rate to 45%.

Whether these changes will be incorporated in the 2014 budget is questionable and only time will tell. However, it is important to point out that our “permanent” changes are not permanent, which underscores the importance of maintaining a flexible estate plan.