Time has almost expired for 2011. So, with the exception of a few last minute gifts and end-of-year financial transactions, that usually means relaxing with eggnog and, a bit later, champagne. Of course, it also means that 2012 is about to start ticking and that’s big news. 2012 is going to be a big year for planning. Why? Because the end of 2012 also means the end of the foreseeable future regarding a huge swath of estate planning issues. Everything we know now about the estate tax, the gift tax, and the other wealth transfer taxes is only set in the tax code until the end of 2012… at least until Congress finishes battling it out and makes a decision about what to do going forward. In the end, proper planning these days is about taking advantage of what we know about 2012, and hedging our bets about the future thereafter. So what do we know? Smart Money recently provided a brief run-down here: The estate tax is still set at a $5 million exemption with a 35% rate thereafter but, barring action, it will revert back to a $1 million exemption and a 55% rate! To be precise, the estate tax is actually indexed for inflation and that means it is effectively set at $5.12 million for 2012 The exemption amount for the gift tax is the same as it is for the lifetime gift-tax exemption at the inflation indexed $5.12 million, and in like fashion will snap back in 2013 without any action. This means that it may be the last year ever to take advantage of that unprecedented gifting amount. Finally, a new and very progressive provision will still be in place for 2012: “portability.” Portability means that a spouse may pass along their unused estate/gift tax exemption to their surviving spouse. That makes the effective total a married couple can pass on without tax a whopping $10 million, or $10.24 once indexed for inflation. These at least are the basic facts. It may well be that we will see a situation not unlike what occurred in 2010, when the Bush-era laws expired at congressional inaction. Remember that? Taxpayers tried to hold out until 2010 and then tried to hold onto 2010 laws (or lack thereof) until the first moments of 2011. Will we be holding onto these laws currently in play through 2012 and their generous exemptions, or is 2013 going to be even more advantageous… or treacherous for taxpayers?
Reference: Smart Money (December 13, 2011) “Estate Planning for 2012”