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Time is Dwindling To Take Advantage of $5,120,000 Federal Estate and Gift Tax Exemption

October 1, 2012


Unless Congress and the President act before January 1, 2013 (or retroactively thereafter), as of January 1, 2013 the federal estate, gift and generation skipping tax exemption, currently at an all-time high of $5,120,000 per taxpayer, will be reduced to $1,000,000.  Also, maximum marginal estate and gift tax rates, and the generation skipping tax rate, will increase from the current all-time low of 35%, to 55% (or even higher for estates in excess of $11,000,000).  There are still a few months left for clients to take advantage of the $5,120,000 exemption.  A husband and wife can gift a total of $10,240,000 even if the assets being transferred are owned by one of the spouses.  Same sex couples can also use this increased single exemption to transfer assets to each other.  However, for all taxpayers who make gifts of this type, the gifts will reduce the amount of available exemption for later gifts or at death.

In the past several years we have been advising clients on making gifts to take advantage of this perhaps temporarily increased exemption.  Gifts can be made outright to children, grandchildren and other beneficiaries or to trusts for these individuals.  With the use of grantor retained annuity trusts, qualified personal residence trusts, split-interest charitable trusts, gifts of fractional interests in real estate, family limited partnerships and/or sales to a grantor trust, the value of the gift can be discounted for federal gift tax purposes and that shifts greater wealth to beneficiaries.  These techniques also minimize state inheritance and estate taxes, and, in some cases, federal and state income taxes.  Asset protection planning for the client and the client’s beneficiaries is a significant additional benefit to these and other estate planning techniques.

Please contact any member of Montgomery McCracken’s Trusts and Estates Practice if you would like to discuss this perhaps limited-time opportunity to reduce or eliminate federal and state estate and inheritance taxes or to discuss any other aspect of your or your clients’ estate planning.