By Ben Doak, Analyst
Estate and Gift Tax in 2012
Estate planners have an exciting and busy year ahead. December 31, 2012 marks the sunset of the Federal Estate, Gift, and Generational Skipping Transfer Tax provisions of the Bush-era tax cuts. Congress originally extended these provisions under the Tax Relief Act of 2010 at a rate which many called a surprising gift to families ($5 million total exemption followed by a 35% tax rate). Last December, Congress announced an inflation adjustment of the exemption to $5.12 million.
From 2001 to 2009, the estate tax exemption rose from $675 thousand to $3.5 million. A legislative anomaly removed any exemption in 2010, but returned the exemption at $5 million in 2011. The gift tax exclusion, meanwhile, increased from $675 thousand in 2001 to $1 million from 2002 to 2010, before increasing again to $5 million in 2011. The tax levied on these items dropped in 2009 from 55% to 45%, and it fell again in 2010 to 35%.
As the law currently stands, the estate tax exemption and gift tax exclusion is set to return to $1 million in 2013, and the rate is set to increase to 55% next year.
The implication for estate and gift planning is clear – gift now. Under current rules, a couple can shelter up to $10.24 million of taxable gifts. Business owners concerned about the liquidity implications of the estate tax who act this year can transfer a significantly larger interest before the payment of a significant cash tax is required. Do note that the planning process can be lengthy, so don’t wait till the last minute to take advantage.
Remember, the more favorable rates are temporary, and they are scheduled to expire at the end of the year. Many analysts believe that due to government fiscal considerations and the election year, it is unlikely that Congress will extend the lower rates.
We Can Help
The federal estate tax regulations are complex, and many states (including Tennessee) impose their own, independent estate and gift taxes. It is therefore important to seek competent, qualified estate planning assistance from professionals familiar not only with the federal rules, but also with the rules of your state. If you want to make gifts before the increase in the tax rates, contact a Decosimo estate planning professional at 800.782.8382.
Brent McDade | Managing Director, Decosimo Advisory Services
James Morrison | Tax Principal
Bob Wheat | Senior Tax Manager