Time is running out to take advantage of the liberal estate and gift tax exemptions of 2012. Currently, the exemption amount is $5.12 million for both gift and estate tax purposes. This exemption is scheduled to sunset on December 31, 2012, after which it will revert to a much harsher $1 million exemption and the estate tax rate will rise from 35% to 55%.
Before the end of 2012, a married couple may transfer assets with a value of up to $10.24 million (reduced by any previous taxable gifts) to their children or grandchildren and such transfers to the next generation are estate, gift, and generation skipping transfer tax-free. This helps to relieve the next generation’s burden of paying significant estate taxes and ensuring that more assets are received by the family.
Interested taxpayers who wait too long to begin the planning process, run the risk that there will not be time to complete the paperwork before year’s end. Making a decision to engage in tax planning is the easy part, it’s the analysis, drafting and implementation that takes the most time and effort. Those who wait until December may come to find that it is too late.
If it sounds like we have all heard this before, it is probably because we have. The sunset of the estate and gift tax rate was set to occur at the end of 2010, following a year when the estate tax was eliminated. However, a last minute deal in Washington gave taxpayer’s a reprieve and led to the generous exemptions and rates we see today. However, the difference between this instance and the previous one is fairly easy to identify. Today’s political differences and economic climate will likely make it much more difficult for Congress to maintain the current exemption policies. This means that we may truly be facing the end to some of the most taxpayer-friendly estate and gift tax exemptions of our lifetime.
If you would like to discuss year-end tax planning, contact a Florida tax attorney who can assist you.