Background:
The Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 ( the “2010 Act”) ushered in some very significant estate and gift tax opportunities that include:
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Increase in the Estate Tax Exclusion from $3.5M to $5M ($5.12m in 2012).
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Increase in the Gift Tax Exclusion from $1M to $5M ($5.12m in 2012).
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Increase the Generation Skipping Tax (GST) Exclusion to $5M ($5.12m in 2012).
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Lowering of the maximum marginal rate on estate and gift taxes to 35%
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Transferability of Exclusions between spouses.
Under current law all of these opportunities will expire on December 31, 2012, and the following “reset” will occur:
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The estate and gift tax exclusion amounts will return to $1M.
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The maximum marginal estate and gift tax rates will return to 55%
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The transferability of exclusion amounts between spouses will disappear.
Prospects for Extension:
The prospects for extension of the favorable provisions currently in effect is deemed to be remote at best by many nationally recognized authorities. Consider the following:
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Currently, there are no discussion in Congress to extend any of the existing benefits at their current levels.
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Currently, there are no discussion in Congress for an outright repeal of the estate or gift taxes.
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Recent Presidential budget proposals assume resumption of the estate and gift structure at levels lower than currently in effect.
What can you do?
Now is the time to take advantage of these soon to be lost favorable tax law provisions. The marginal rate on the estate tax has not been as low as 35% since FDR was president.
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Even if you have utilized the prior $1M gift tax exclusion, you may still have over $4M available for planning.
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Techniques are available for “leveraging” the available exclusion to accomplish the transfer of greater values.
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If you continue to need a stream of income from your assets, special planning techniques should be considered:
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Techniques such as sales of assets on an installment basis to trusts, creating a trust where you retain an annuity in the assets transferred and other creative methods are available for you to retain a stream of income while giving away future asset appreciation.
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Benefiting charities can also be incorporated into the planning to create income tax savings and opportunities to create new wealth in younger generations outside of your estate.
The time to start your year end planning is now. To make the most of these remaining planning opportunities, you should start considering the best alternative for you now.
For more information on these and other planning opportunities, please contact:
Jim Tramonte, in Atlanta and Nashville, and
Don Morton, in Chattanooga.
The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance. Should you need assistance from a Miller & Martin attorney, please call 1-800-275-7303.
