Less than five months remain in 2012, so the time is running out to take advantage of sizeable gift- and estate-tax exemptions that are set to expire at the end of this year. First, a little background. In 2001 Congress enacted a law that gradually raised the estate-tax exemption from $1 million to $3.5 million and reduced the estate-tax rate from 55% to 35% over ten years. The estate tax was eliminated completely in 2010. However, the 2001 law was scheduled to sunset after 10 years. Starting in 2011, the estate tax was set to come roaring back with a rate of 55% and an exemption of just $1 million.
In late 2010, Congress enacted a two-year extension of the 2001 law. At the same time, Congress raised the estate-tax exemption to $5 million, did the same for the gift-tax exemption and generation-skipping-tax (GST) exemption, and cut the rates of all taxes to 35%. Again, these new rates and exemptions were passed for two years only, and are set to expire at the end of this year. If Congress does nothing, the exemptions will go back to $1 million and the rates back to 55% on January 1, 2013.
There is thus a limited window of opportunity to take advantage of the current exemptions, which, due to inflationary increases, are $5,120,000 in 2012. For many people, now is a great time to make sizable gifts, often in trust, to take advantage of those exemptions to pass wealth to the next generation free of transfer taxes. If you are interested in exploring the options available to you over the next few months, contact one of Nyemaster Goode's estate-planning attorneys soon.