In our previous post, we began looking at the various changes set to take place in the income tax and estate/gift tax systems. These changes, which could be significant, should prompt readers-especially those who are wealthy-to review their estate plan to take maximum advantage of the current situation.
As with the federal estate tax, the top rate for the federal gift tax in 2012 is 35 percent and the lifetime gift tax exemption amount is $5,120,000 per individual. The top rate is set to change to 55 percent in 2013 and the exemption amount is set to fall to $1 million per person. In addition, taxpayers have a yearly gift tax exclusion amount of $13,000 per recipient, as well as unlimited gift tax exclusion for qualifying medical and education payments.
The federal generation-skipping transfer tax rate is set to increase from 35 percent in 2012 to55 percent in 2013, and the generation-skipping transfer tax exemption amount is set to decrease from $5,120,000 to roughly $1.3 million per person.
As far as what types of changes can be expected, it is rather up in the air. President Obama has proposed some changes for 2013, but nothing has yet been enacted into law. Such changes include a minimum tax for millionaires, further limitation on itemized deductions for high-income individuals, increase the top estate, gift and generation-skipping transfer tax rates to 45 percent, and lower the estate, gift and generation-skipping transfer tax exclusion and exemption amounts.
The currently high exemption amounts are an amazing opportunity to wealthy individuals to make gifts to family members, but those gifts must be made by the end of 2012. As with all estate planning matters, it is best to work with an experienced attorney to take advantage of the present state of the tax system.
Source: Smart Business, "How to approach tax and estate planning opportunities for 2012," Stanley Heyman, January 3, 2012.