signed by President Obama on December 17, 2010 extending the Bush tax cuts
includes provisions that significantly change the Federal estate, gift and
generation-skipping transfer ("GST") tax regimes. Specifically, the new bill dramatically
reduces Federal estate, gift and GST rates from 45% to 35% and reunifies all
exemptions to $5,000,000. Among other
things, this sweeping legislation will create new tax-free gifting
opportunities in 2011.
Prior to this
bill, the lifetime Federal gift tax exemption was $1,000,000. Individuals with larger estates may have
fully utilized their exemption amount through gifting strategies, either
outright or in trust, or more sophisticated techniques like a sale to a
defective grantor trust. In some cases,
individuals may have even exceeded the exemption amount and paid gift taxes at
the 45% rate. Whatever the case, the new
law provides an opportunity to gift another $4,000,000 ($8,000,000 in the case
of a married couple) without incurring a gift tax. Additionally, for individuals who have
exhausted less than $1,000,000 of their GST exemption, these new gifts can be
made to grandchildren and more remote descendants without incurring a GST
tax. The significant increase in the new
exemption amount opens the door for much larger lifetime gifting without the
adverse consequence of a gift tax.
Moreover, for those of considerable wealth, it may even make sense to
exceed the exemption amount given the reduced gift tax rate of 35%.
Since this law
will "sunset" at the end of 2012, there is a two-year window to initiate these
new gifting opportunities. As we have
recently witnessed, there is no telling whether Congress will extend these
generous provisions beyond 2012.
Accordingly, it is encouraged that individuals utilize their additional
gift tax exemption now if gifting over $1,000,000 is a viable option within
their overall estate planning strategy.
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