Estate Planning Now and in the Future

Richard Weintraub, Attorney/Consultant Profile Image

Estate planning is fraught with uncertainty and Congress is to blame. In 2010, when lawmakers prevented the exemptions for state and gift taxes from falling to $1 million, they did so for only two years. So after 2012, the rules in effect before 2001 will return unless Congress acts. The current $5.12-million estate and gift tax exemption would fall to $1 million, while the maximum tax rate would rise to 55%....a 20 percentage point increase. The "portability" of estate tax exemptions for spouses would expire, too. That would be a significant loss.

Lawmakers haven't done anything to establish a set of permanent rules on estate and gift taxes, leaving taxpayers and their advisers on their own to plan. The 35% flat tax rate, the $5.12 million estate and gift tax exemption that is indexed annually for inflation, and the portable estate tax exemption are expected to be extended….before it lapses at the end of the year. Even though some Democrats have called for cutting the exemption to $3.5 million after 2012 or slashing it to $1 million – hope not!

The most likely outcome is a one-year extension of all the rules.

So, while uncertainty about estate and gift taxes will remain for awhile, it's a good idea to consider taking advantage of the higher gift tax exemption. By making gifts, all future income and appreciation on the assets that you give away is removed from your estate, so it's best to give assets you expect will soar in value. Currently, individuals can give away up to $5.12 million of assets free of gift tax…$10.24 million for married couples. And don't ignore making annual exclusion gifts. You and your spouse can each give $13,000 this year to anyone without eating away at your lifetime gift tax exemptions. In 2013, the amount will increase to $14,000. [Will "portability" continue in 2013?]

Meanwhile, the IRS has some guidance on the portable estate tax exemptions. After the death of one spouse, the survivor can lay claim to any unused exemption and make larger tax free lifetime gifts or bequeath more assets free of estate tax.

Estates electing portability of any unused exemptions must file Form 706, the IRS says in new regulations, even if the decedent's estate is less than $5 million for deaths in 2011 and $5.12 million for 2012 deaths. The 706 must be timely filed. To ease the burden, the IRS will allow executors of nontaxable estates to estimate the value of assets shown on the return. Form 706 and its instructions will be revised shortly to provide ranges of dollar values that executors can use. # # # #

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