Alert: Current Gift Tax Exemption Set to Expire After December 31
The current federal gift tax exemption allows individual taxpayers to transfer up to $5.12 million in assets out of their estate tax-free; married couples filing jointly can transfer over $10 million. These exemption amounts, however, are set to expire after December 31, 2012, and unless Congress takes action, the individual exemption will drop to $1 million beginning January 1.
The current exemption is particularly beneficial in estate planning. Normally, any assets left in one’s estate upon death are taxed at rate between 35% and 55%. The tax is due in cash just 9 months after death, and if the estate is substantially comprised of illiquid assets, loved ones may need to sell off assets at depressed market or fire sale prices. To avoid the estate tax, it is often advisable to transfer assets during one’s life into a trust or other entity. Such transfers, however, may be subject to the federal gift tax. The current gift tax exemption allows over $4 million more in assets to be transferred out of one’s estate without being subject to tax than the anticipated exemption will allow after the end of the year.
Anyone contemplating an estate plan with sufficient assets to utilize the current exemption would be well-served to contact a qualified estate planner before the current exemption expires.