Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

   
Resources - Tax Center - Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York
     
 

Take Advantage of Estate & Gift Tax Rates in 2012

 
 

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. These include:

  • Federal Exemption Portability. 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 be revoked.

  • 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 35%. 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 tax rate.

  • 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

Now that 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.   

Contact Us

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 end.  

 

 
 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York