Window Closing on Unprecedented Tax-Free Gifting Opportunity– June 06, 2012

The Tax Relief, Unemployment Insurance Reauthorization and Job creation Act of 2010 (Act) unified the estate, gift, and generation skipping tax (GST) exemptions and increased the exemption amounts to an unprecedented $5.12 million ($10.24 million, including a spouse). Through December 31, 2012, an individual can make lifetime gifts up to these amounts without paying any tax. However, absent congressional action, as of January 1, 2013, this opportunity will be lost and exemptions will revert to $1 million.

The Significance

Historically, the lifetime gift exemption, i.e., the amount that an individual can pass onto heirs during his or her lifetime without the imposition of any gift tax, has never been this high. Even for those who have already used their $1 million exemption, the Act created a fresh $4.12 million opportunity to lower future estate taxes. It also provides an individual with the satisfaction of seeing children and grandchildren enjoy the fruits of their labors during their lifetime.

From a planning perspective, not only can an individual remove the current value of the assets gifted from the estate, but all future appreciation on those assets that would have otherwise been potentially subject to estate taxes is also successfully transferred to heirs. Strategically, the best assets to consider gifting are those that have the highest opportunity for future appreciation and those not critical to an individual’s lifetime financial security.

Next Steps

While this enhanced exemption poses an excellent opportunity, there are issues to consider. Not everyone will be able to take full advantage of this planning opportunity; and the senior generation’s lifetime financial security is certainly top priority. Additionally, no one can predict if Congress will decide to extend this enhanced exemption beyond December 31, 2012.

However, based on the information currently available, it may be worth evaluating whether it makes sense to take advantage of this unique planning opportunity. Given the complexities surrounding the transfer of large amounts of wealth, we encourage you to begin a discussion now with a member of our estate planning team so we can comprehensively evaluate your situation and execute accordingly.

To review your individual situation and evaluate whether a shift in your gifting strategy makes sense, contact Alane Boffa at aboffa@cohencpa.com or a member of your service team.

 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.