2012 presents unique opportunities for gift and estate planning. Currently, the laws as of January 1, 2012, provide up to $5 million ($10 million for married couples) of unified exemption and a tax rate of 35%. Combined, the exemption and rate are the most generous in decades. Unless Congress acts, as of January 1, 2013, the lifetime credit exemption drops to $1 million ($2 million for married couples) and the tax rate increases to 55%. Taking advantage of these favorable 2012 laws could provide significant transfer tax savings.
Below are just a few of the possible ways to take advantage of these favorable tax laws:
- A gift using any remaining unified lifetime exemption, up to $5 million ($10 million for married couples).
- Given the low applicable federal rates (AFR), one can transfer significant value to a grantor retained annuity trust (GRAT) while using very little of the lifetime exemption. This planning technique is best with income-producing assets that over time will outperform the AFR (1.4% in January, 2012).
- With lower residence valuations, qualified personal residence trusts (QRPT) allow the transfer of a residence while retaining the right to live in the home.
- Transferring closely-held company stock or other ownership equity to pass on a family business to the next generation.
If you would like to review your gift and estate plan or discuss options to take advantage of the favorable tax treatment in transfers in 2012, please contact one of our tax attorneys. This is a general overview, and one should not take action without proper counsel and guidance.
