Written by Attorneys Charles Davis and Lori Curtis

Tax legislation passed at the end of 2010 provided a unique opportunity to maximize your estate and tax planning opportunities.  The 2010 Tax Act temporarily lowered the federal estate, gift, and generation-skipping transfer (“GST”)[1] tax rates to 35 percent.  At the same time, Congress increased the amounts that would be exempt from federal estate, gift, and GST taxes to $5.12 million for 2012. Unfortunately, these exemptions are only temporary and your window of opportunity is closing. 

Unless Congress takes action, at the end of this year we go back to the rules we were under in 2001. As the chart below illustrates, the gift and estate tax exemptions will return to $1,000,000 on January 1, 2013, and the maximum gift and estate tax rates will increase from 35% to 55%. 

                                   Tax Exclusion                 Tax Rate

This Year:                  $5,120,000                            35%

2013:                         $1,000,000                            55%


In other words, until the end of 2012, a married couple can gift up to $10.24 million and, if done properly, that amount will be exempt from any estate tax, which would be imposed at the time of their death. After 2012, the amount you can gift tax free and remove from your estate is scheduled to drop to $1 million per person. 

The maximum amount during lifetime or at death that you will be able to shield from estate tax on the second death will be $2 million. Anything over that amount is taxed at 55%.  That means that the government will take 55 cents of every dollar over the $2 million that you can shelter. Additionally, President Obama intends to impose significant taxes on larger estates.[2]

In order to take advantage of the increased exemptions and low transfer tax rates, you may wish to implement an estate plan that maximizes these tax savings before the end of the year. Taking action now could result in thousands to millions of dollars in tax savings.

“But,” you may be thinking, “I don’t want to give away all that money now!”

There are several strategies for utilizing the $5,120,000 gift tax exemption before it is lost that allow you to remove the property from your estate without losing the benefits.  Some of these strategies, however, take time to implement.  It is critical that you act now so that we have time to effectively execute your estate plan. The strategies that are best for you will depend on a number of factors: the size and make-up of your estate, your current financial needs, the needs of your beneficiaries and other family-centric situations. Don’t assume you know what strategies are available and what ones are best for you.

Since time is short to accomplish some of the better strategies, please call our office today to schedule an appointment.  We may not have time to effectively implement your tax-saving estate plan if you call us at the end of the year.  The time to act is now.  Call today!

[1] The Generation-Skipping-Transfer Tax taxes transfers that would otherwise skip generations. For example if you left assets in trust for the benefit of all of your posterity for the next 500 years, the law imposes an additional tax on such transfers.

[2] “The Romney and Obama Fantasy Tax Plans,” Rick Newman, U.S. News and World Report (August 3, 2012), http://www.usnews.com/news/blogs/rick-newman/2012/08/03/the-romney-and-obama-fantasy-tax-plans.