$5,000,000 Gift Tax Exemption Ending December 31, 2012

For 2011 and 2012, the estate and gift tax statutes permit cumulative tax-free lifetime transfers and transfers at death totaling $5,000,000 per person. The $5,000,000 “exemption” can be used during lifetime, or at death, or used partially during lifetime and the balance at death. The tax rate on transfers in excess of $5,000,000 is a flat 35%. The compromise that was reached in 2010 when this law was enacted was that effective January 1, 2013, the $5,000,000 is to be reduced to only $1,000,000 per taxpayer, and the top marginal estate tax rate will increase to 55%.

For wealthy married clients who have estates significantly in excess of $10,000,000, using the $5,000,000 gift exemption now can create huge opportunities when selling assets such as commercial real estate or closely held business to an intentionally Defective Grantor Trust.

The high gift exemptions present significant estate planning opportunities, especially in the current economic environment where asset values and interest rates are very low. It should be noted that these changes apply only through December 31, 2012, and absent further legislation the law will revert to pre-2001 rates. It is recommended that you take advantage of these tremendous opportunities now.