Did you delay estate and gift tax planning until
after the election? If so, then now is the time to
act. With the election concluded the President and
Congress will soon shift their attention to
addressing mounting tax issues. Whatever resolution
is passed over the coming weeks, one thing is clear
-- taxpayers should not wait any longer to implement
their estate and gift tax plan.
The current estate and gift tax rates, established
by the Tax Relief Act of 2010, are set to expire on
December 31, 2012. Unless action is taken, estate
taxes will increase to the less favorable and
significantly higher rates.
Key Expiring Tax Provisions
Below we have provided a list of the key estate and gift
tax provisions that are set to expire at year end.
Under the existing law, if the first spouse
dies and does not consume all of
their federal exemption from estate
taxes, then the unused amount is
transferred to the surviving spouse.
This allows the surviving spouse to
leverage the deceased spouse’s
unused exemptions plus their own.
Portability allows the surviving
spouse a larger exclusion amount and
overall reduced tax rates.
Effective January 1, 2013, the
federal exemption portability will
New Estate Tax Exemption Rules.
For those who die in 2012, the
federal estate tax exemption amount
is $5M ($10M for married couples),
and the federal estate tax rate is
35%. Beneficiaries who receive
assets for descendants dying in 2012
receive those assets with a basis
equal to the fair market value at
the date of the descendant’s death.
Effective January 1, 2013 this
estate tax exemption will revert
back the lower amount of $1M.
New Gift Tax Exemption
Rules. Currently, the federal gift tax exemption
for taxable lifetime transfers in
2012 is $5M and the gift tax rate is
Effective January 1, 2013 the gift
tax exemption will revert to $1M and
a gift tax top rate of 55%. This is
a $4M decrease in gift tax exemption
along with a 20% penalty on the gift
New GST (Generation
Skipping Tax) Rules. Under the current
law, the GST lifetime exemption is
$5M and the GST rate is 35%.
Effective January 1, 2013 the GST lifetime exemption will change to
$1.4M and the GST rate will be 55%.
Proposed Changes for 2013 & Beyond
President Obama has been re-elected, it’s important
to assess his proposal for estate and gift tax laws
to understand what the future might hold. On
February 13, 2012, he sent Congress a new budget
proposal that included changes to the estates and
gift tax rates for 2013 and beyond. Below we have
highlighted the key areas which will have the
biggest impact, if passed.
Reversion of Estate & Gift Tax Rates – The maximum tax rate would be 45%,
the lifetime exemptions would be reduced to $3.5M
and the GST and the gift tax lifetime exemption
would be reduced to $1M. The current proposal
indicates all of these changes would be permanent.
This change is the key reason individuals should be
focused on estate planning in 2012. The over 80%
reduction of the gift tax exclusion would mean a
significantly higher tax burden for those waiting to
take action until 2013.
Federal Exemption Portability – The proposed change will permanently
extend the portability feature of the current estate
and gift tax laws. This means that if a spouse dies
the surviving spouse will be permitted to use the
decedent spouse’s unused estate tax exclusion
amount. It will require that an estate tax return be
filed to protect the right to the deceased spouse’s
lifetime tax credit.
Take advantage of current estate and gift tax saving
opportunities! It is unlikely that the President or
Congress will make a wholesale extension of the
existing estate and gift tax provisions beyond the
end of the year. For assistance with your estate and
gift tax planning strategy, please contact
Boris Benic, CPA,
at 516-248-7361, or
click here to email Boris.
In a brief consultation he can assess your situation
and identify the ideal steps to take prior to year