In prior Bulletins (see below), we informed you that the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) increased the lifetime gift tax exemption to $5 million for 2011, and, with an inflationary adjustment, to $5.12 million for 2012. By its terms, many provisions of the Act are scheduled to expire once more in 2013, and Congress will again be tasked with the responsibility of re-evaluating and implementing changes to the transfer tax system.
Accordingly, individuals who have not previously made substantial gifts have the ability to transfer up to $5.12 million ($10.24 million with a spouse) to friends and family or to trusts for their benefit if the gift is made prior to January 1, 2013. Any gifts in excess of the exemption amount will be taxed at the rate of 35%. If Congress does not make any further changes in the law, on January 1, 2013 the estate and gift tax exemptions will return to $1 million, the GST tax exemption will drop to an inflation-adjusted amount slightly larger than that, and the top estate, gift and GST tax rates will return to 55%.
It is difficult to predict whether Congress will act to prevent the scheduled exemption reduction in 2013. Due to the uncertainty, you may wish to take steps to effectively utilize the current $5.12 million exemption while it remains in the law for the next few months. For those individuals or couples who are concerned about transferring such a large amount this year, but are confident that the assets to make a transfer of this size will be available in the next few years, options may be available to use your exemptions this year without transferring assets immediately. For a married couple, failure to use their exemptions this year could result in an additional $4.4 million in estate tax owed by the survivor’s estate, and a significant reduction in the amount of assets that can be sheltered from GST tax for grandchildren and more remote descendants.
If you have any questions regarding this Bulletin or would like to discuss the options available to most effectively utilize your exemption this year, please contact one of the attorneys listed below.
December 17, 2010 Gifting Bulletin
December 23, 2010 Transfer Tax Bulletin
