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.

[View source.]