With April 17th – Tax Day – safely in your rearview mirror (and your nerves beginning to calm), it is time to plan now for Tax Day 2013. That’s right, it’s still tax season! There are fewer than nine months left to avoid gift taxes and, for some, massive estate taxes. This clarion call rang out in the run-up to Tax Day 2012 in an article in AdvisorOne titled “Estate Planners: 9 Months Left for Tax-Free Transfer of $10 Million.” Here’s the rub: The estate tax exemption for 2012 is $5 million (with a potential combined exemption of $10 million for married couples). However, as reported in the AdvisorOne article, the estate tax seems to be getting most of the buzz when the greatest benefit may actually lie with the gift tax and its generous levels. The gift tax, which is unified with the estate tax exemption amount, also is set to $5 million (and potentially $10 million for married couples). Albeit focusing on the gift tax exemption over the estate tax exemption may seem like semantics, given that they are “unified” (i.e., they are in practical reality one and the same amount and using the lifetime gift tax exemption will correspondingly lower your personal estate tax exemption). The important distinction is that not everyone will be transferring their entire estate through gifting this year, but everyone should assess whether making substantial gifts is prudent in the context of their unique circumstances. Regardless, under current law, the opportunity for making substantial lifetime wealth transfers expires on December 31, 2012. If the White House and Congress do not act together before such expiration (and things are rather rancorous right now), then we revert automatically to the pre-Bush-era days with $1 million unified exemptions for both gift and estate taxes. Bottom line: Engage qualified legal counsel to help determine whether making substantial gifts now can protect and preserve more of your hard-earned wealth for your loved ones instead of the IRS.
Reference: AdviserOne (March 30, 2012) “Estate Planners: 9 Months Left for Tax-Free Transfer of $10 Million”