Wealth Management Update

Actionable Planning Ideas for 2013

With the passage the American Taxpayer Relief Act of 2012 (ATRA) and the clarity that hindsight provides, some may be wondering if all of their scrambling to implement gifting strategies in 2012 was wasted effort. Was it all just a big Y2K for estate attorneys? Yet another fad destined for the scrapheap of history? 

Quite the contrary, those who took action in 2012 should be congratulated. Generations to come will benefit from the implementation of these gifting strategies as the gifted assets continue to grow outside of the taxable estate. Planning that begins with a deep understanding of your unique goals and objectives is always a valuable exercise. The good news for those who didn’t act in 2012 is that virtually the same opportunities exist today. You might even say the opportunity is permanent.

Permanent is in the Eye of the Beholder

Is anything Congress does ever really permanent? While these changes are “permanent” in the sense that they have no sunset expiration provisions, taxpayers should be aware that in a high-deficit environment, revenue sources are always being sought and changes could be implemented at any time. While the so-called fiscal cliff deadline may have passed, another spending cut deadline and a debt ceiling debate are on the horizon.

As we learned last year, predicting a congressional course of action is impossible; however, it is worth noting that previous proposals have called for closing several perceived “loopholes,” including:

  • Setting the minimum term for Grantor Retained Annuity Trusts (GRATs) at 10 years
  • Limiting the use of valuation discounts on intrafamily property transfers
  • Requiring consistency in basis calculations for income and estate tax purposes
  • Adding Intentionally Defective Grantor Trusts (IDGTs) to the taxable estate of the grantor
  • Limiting the duration of Generation-Skipping Tax (GST) exempt trusts

You should consider taking advantage of appropriate strategies that align with your goals now, before the next round of “permanent” changes arrive.

Use Inflation to Your Advantage

One of the changes covered under ATRA was the unification of the estate and gift tax exemption amounts. These amounts are commonly (and erroneously) referred to as $5 million. For 2012, the amount is actually $5,120,000 and for 2013, it’s $5.25 million. Why the confusion? Inflation.

These amounts are adjusted for inflation annually, and as this number rises, the adjustment allows for an ongoing planning opportunity. If you took advantage of a $5,120,000 gift last year, you could potentially have another $125,000 to gift again this year. Who knew inflation could be a good thing?

Altruism Just Got Cheaper

Prior to tax year 2012, taxpayers were allowed to make qualified charitable distributions (QCD) or tax-free annual distributions of up to $100,000 from individual retirement plans directly to qualified charities. This allowed many individuals to use their required minimum distributions (RMDs) to fund their philanthropic goals in a manner that did not increase their taxable income. The ATRA retroactively reinstates these distributions for 2012 (under certain conditions) and extends them for 2013. This offers some unique planning opportunities for charitably-inclined clients currently taking RMDs. If you are interested for 2012, you’ll need to act fast as the deadline is February 1, 2013.

Perhaps the simplest and often overlooked strategy, regular annual gifting can still have a large impact on estate taxes. For 2013, the annual exclusion amount is $14,000, meaning you may gift $14,000 annually to anyone tax free. If you are married, double that amount to $28,000 for 2013. Over time, these gifts can add up to a substantial amount, plus the assets are permanently removed from your estate. More sophisticated strategies worth a look in today’s environment could include IDGTs, GRATs or Irrevocable Life Insurance Trusts (ILITs).

2012 or 2013?

The fluid nature of tax law represents a moving target. When permanent no longer means permanent and the 2012 American Tax Relief Act is written in 2013, you need answers. Our Wealth Planning process focuses on developing a clear picture of your unique goals and objectives. From this foundational understanding, our relationship managers coordinate a team of local specialists to build a personalized action plan that aligns solutions with those goals. Ask your Relationship Manager about wealth planning today.



Wells Fargo Wealth Management provides products and services through Wells Fargo Bank, N.A., and its various subsidiaries and affiliates. This information is for educational and illustrative purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation, of an offer to buy, or a recommendation for any security.

The information and opinions in this report were prepared by Wells Fargo Wealth Management. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo’s opinion as of the date of this report and are for general information purposes only. Wells Fargo does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The strategies discussed in this report may be unsuitable for some clients depending on their specific objectives and financial position. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Wells Fargo and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depend on the specific facts of your own situation at the time your taxes are prepared.

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Katherine Dean, CFP®

Managing Director, Wealth Management Planning

Actionable Planning Ideas for 2013 (PDF)
January 28, 2013

In this Wealth Management Update, Managing Director of Regional Planning Katherine Dean discusses recent tax law changes and planning strategies to consider for 2013.


Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

Wells Fargo Wealth Management provides financial products and services through Wells Fargo Bank, N.A. and their various affiliates and subsidiaries. The information and opinions in these reports were prepared by the Investment Management arm of Wells Fargo Private Bank, a part of Wells Fargo Wealth Management and a division of Wells Fargo Bank, N.A.

Investments discussed in these reports may not be insured by the Federal Deposit Insurance Corporation and may be unsuitable for some investors depending on their specific investment objectives and financial position. These reports are not an offer to buy or sell, or a solicitation of an offer to buy or sell the securities or strategies mentioned.

Brokerage services offered by Wells Fargo Advisors, LLC. Wells Fargo Advisors, LLC, Member SIPC is a registered broker-dealer and separate non-bank affiliate of Wells Fargo & Company.


Investment Products: Not FDIC Insured, No Bank Guarantee, May Lose Value.