Home / News & Updates

2012 Expiring Estate and Gift Provisions

Thanks to legislation passed by Congress in 2010,the gift and estate tax exemption are both $5.12 million and both rates are currently 35%. In addition, the unused exemption of a deceased spouse may carryover and increase the surviving spouse's unused exemption resulting in a surviving spouse's estate tax exemption that can total up to $10 million. In other words, an estate up to $10 million may be passed to surviving beneficiaries (e.g., children) intact without any federal estate tax. However,without Congressional action, gift/estate tax rates and exemptions will revert to pre-2001 levels of 55% and $1 million, respectively, in 2013. Additionally these changes are only guaranteed to be in effect through 2012 as the Tax Relief Act is currently set to expire on December 31, 2012. Therefore, this year may be your last opportunity to cash-in on the current benefits of the Tax Relief Act.

These benefits include:

  • Introducing the concept of portability to estate tax exemptions for spouses;
  • Increasing the estate tax and GST tax exemption amounts to $5 million ($5,120,00 in - adjusted for inflation); and,
  • Increasing the lifetime gift tax exemption for 2011 and 2012

One of the important elements of estate tax planning is freezing the value of property such that future appreciation is not subject to estate tax. Such value-freezing techniques include maximizing the use of the annual gift tax exclusion. Currently, an individual's annual gift tax exclusion per donee is $13,000. In other words, an individual may make a gift to a donee free of any gift tax up to $13,000 without incurring a gift tax. If the individual is married, an election is available to a husband and wife to treat the gift as having been made by one-half each resulting in an annual gift tax exclusion of up to $26,000 per donee without using any of their exemption. The gift plus any subsequent appreciation escapes future estate tax.Over a period of time this can be a very efficient strategy in passing value to family members free of estate tax. Gifts in excess of the annual exclusion should also be considered. As the gift tax exemption may drop to $1 million in 2013, taking advantage of the present $5 million exemption may make sense in 2012 especially where gifts of this magnitude are planned for in the more immediate future. Any future appreciation of such gifts will also avoid estate tax.