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Wealth Transfer Concerns in 2012

"It's that time again"... As we have experienced in the past and most recently in 2009 and 2010, we are once again faced with the uncertainty of the estate and gift tax laws. The last time, we went through over a year of such uncertainty until the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the "2010 Act") was signed into law on December 17, 2010 and was made retroactive to January 1, 2010. The 2010 Act extended what are typically referred to as the "Bush tax cuts" and increased the exemptions allowed for transfers of wealth both during one's lifetime and at one's death. Under the 2010 Act, the estate, gift and generation skipping transfer tax exemption increased to $5.0 million per person for 2010 and 2011 and to $5.12 million per person (as adjusted for inflation) for 2012 and the maximum estate, gift, and generation-skipping transfer tax rate was reduced to 35%.

These laws are set to expire on December 31, 2012 as provided in the 2010 Act. Thus, unless Congress acts, the estate, gift and generation-skipping transfer tax rules in place prior to 2001 are scheduled to return. Under those rules, on January 1, 2013, the estate and gift tax exemption amount will be reduced to $1 million per person and the generation skipping transfer tax exemption will be reduced to $1.39 million. Additionally, the top marginal estate, gift and generation skipping transfer tax rate will return to 55%.

While many taxpayers routinely engage in year-end estate and gift tax planning, the likelihood that there will be higher estate, gift and generation skipping transfer tax rates beginning in January

There are many wealth transfer strategies that may be available for people who are interested in making substantial transfers of wealth. One strategy is to take advantage of the annual exclusion amount, currently $13,000 per person per year ($26,000 per person for a married couple). This annual exclusion amount is scheduled to increase to $14,000 per person per year ($28,000 per person for a married couple) as of January 1, 2013. Thus, if you have not yet used your annual exclusion amount, you could do so now and again in January and, depending upon the number of such gifts you make, you could transfer a sizable amount of your estate to your selected beneficiaries gift tax free and, in many cases, without the need to file a gift tax return.

Another strategy is to establish an irrevocable trust for the benefit of your spouse and/or descendants. If your spouse is one of the beneficiaries of such a trust, so long as your spouse is living and you are married to him or her, you could continue to enjoy the benefits that your spouse enjoys related to any trust distributions.

There are other wealth transfer strategies if you are interested in exploring such options that could allow you to take advantage of the tax favorable provisions prior to December 31. If you are so interested, you will need to act now to allow sufficient planning time prior to year end.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2016. All rights reserved.


About this Author

Norma Stanley, estate planning, tax, attorney, Lowndes, law firm

Norma Stanley advises clients on estate planning, federal tax, probate, guardianship and trust administration, and elder law. With more than 20 years of legal experience in wealth transfer, business succession, sophisticated tax, trust and estate planning, estate and trust administration and family office creation, Norma represents a myriad of clients, including high net worth individuals and their families, beneficiaries of trusts and estates, and trustees and small business owners. In addition to providing estate planning, including complex estate planning for high net worth individuals...