Gifting Opportunities in 2012


There is still time in 2012 to take advantage of a unique gifting opportunity offered under the 2010 Tax Relief Act. The Act, which was signed into law on December 17, 2010, unified the federal estate, lifetime gift and generation-skipping transfer (GST) tax exemption amounts for 2012 and increased them to $5.12 million, with a tax rate of 35 percent on transfers in excess of $5.12 million.  If a new law is not enacted by December 31, 2012, this exemption will revert to $1 million in 2013.   

The following should be noted when considering this opportunity:

  • a single person may give away up to $5.12 million and a married couple may give away up to $10.24 million (less gifts from prior years) without incurring a federal gift tax
  • the same amount of gifts can be made to grandchildren or more remote descendants without incurring a GST tax
  • the 2012 federal gift tax rate on transfers over the exemption amount is relatively low, and may increase substantially beginning in 2013
  • Connecticut has a state gift tax, and the lifetime exemption per person is presently $2 million.  Gifts over that amount will incur a tax
  • gifts should be made only to the extent that the donor can afford to live on his or her remaining assets
  • gifts can be made outright or in certain types of trusts (including those under which the donor may continue to bear the income tax liability)
  • the recipient of the gift receives the donor’s income tax basis
  • it is unclear whether a portion of the value of the gifted property will be removed from the donor’s taxable estate if the exemption amount falls below the amount of the gift; however, any appreciation in value will be removed

Though the provisions of the Act may be extended beyond 2012, at present it is scheduled to sunset on December 31, 2012 with a $1 million exemption.  Accordingly, individuals who wish to take advantage of the increased lifetime gift tax exemption should act as soon as possible.

To discuss gift-giving opportunities, please contact a member of our Trusts and Estates Practice.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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