Expiring Opportunity to Make Large Gifts: Time is running out on the ability to give away US$5.12 million (US$10.24 million for married couples) without paying Federal gift tax. The extension of the "Bush Tax Cuts" that President Obama signed into law in December of 2010 contained a provision that increased the estate, gift and generation-skipping transfer ("GST") tax exemptions to US$5 million in 2011 and US$5.12 million in 2012. These exemptions are currently scheduled to expire at the end of this year. Unless Congress acts to change the law, the gift and estate tax exemptions will go down to US$1 million and the GST tax exemption will go down to US$1.34 million on January 1, 2013. The maximum gift, estate and GST tax rate is scheduled to increase from 35 to 55 percent on that date. In short, there is a high degree of risk that large gifts (more than US$1 million or US$2 million for a married couple) will cost significantly more if made after December 31, 2012.* One should therefore consider "locking-in" the current exemptions with a gift this year.
When considering whether to take advantage of the current exemptions, one should remember that a properly structured transfer can protect from estate and gift tax not only the transferred property, but also all income and appreciation on the property after the gift is made. Taxes can be reduced even further through the creative use of trusts that permit assets to pass through multiple generations without further transfer taxation. Trusts can also protect the assets from claims of a beneficiary's creditors and provide other benefits.
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