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Estate and Elder Law

Fulbright & Jaworski LLP: Tax Changes Effective as of January 1, 2012: Significant Implications For Estate Planning

By Philip J. Michaels, Joseph C. Sleeth, Jr., Stephanie E. Heilborn and Lindsay H. Brown

Estate Tax

The federal estate tax applicable exclusion amount increases from $5,000,000 to $5,120,000 per person for 2012. The top estate tax rate for estates valued over this amount is 35%. During 2012, the portability of the deceased spousal unused exclusion amount (DSUEA) is still available, i.e., the federal estate tax applicable exclusion amount for married spouses is $10,240,000 combined.  

Generation-Skipping Transfer Tax

The federal generation-skipping transfer ("GST") tax exemption amount increases from $5,000,000 to $5,120,000 per person for 2012. The GST tax rate for generation-skipping transfers above this amount is 35%.

Gift Tax

The lifetime federal gift tax exemption amount increases from $5,000,000 to $5,120,000 per personfor 2012. The tax rate for cumulative gifts above this amount is 35%.

The gift tax annual exclusion amount remains at $13,000 for 2012. Thus in 2012, each person may transfer up to $13,000 per recipient to an unlimited number of individuals free of gift tax. This affects various aspects of planned annual gifting, including the payment of life insurance premiums on policies that are held in trust. 

The annual exemption amount for gifts from a citizen spouse to a non-citizen spouse has increased from $134,000 to $139,000. Thus in 2012, a spouse can transfer up to $139,000 to his or her non-citizen spouse free of gift tax.           

Looking Ahead

Absent legislative changes, on January 1, 2013, the federal estate tax applicable exclusion amount and gift tax exemption amount will return to $1,000,000, and the GST tax exemption amount will return to $1,000,000, as indexed for inflation after 1997 (for 2013, this will likely be slightly over $1,340,000). 

Additionally, on January 1, 2013, the top estate tax rate will return to 55% (with a 5% surcharge on estates between $10,000,000 and $17,184,000), the top gift tax rate will return to 55% (with a 5% surcharge on cumulative gifts between $10,000,000 and $17,184,000), and the GST tax rate will return to 55%. The DSUEA (i.e., portability of the estate tax exemption amount between spouses) will also expire.  

Significant Wealth Transfer Opportunities

As noted above, the unprecedented lifetime gift tax exemption of $5,120,000 is set to expire at the end of this year, and we strongly encourage our clients to consider taking advantage of the wealth transfer opportunities available to them and their families in 2012 before it is too late. In addition to the increased gift tax exemption amount, in the near term we should continue to have historically low interest rates applicable to intra-family loans, GRATs and other wealth transfer techniques. 

This article was prepared by Philip J. Michaels ( or 212 318 3179), Joseph C. Sleeth, Jr. ( or 713 651 5527), Stephanie E. Heilborn ( or 212 318 3207) and Lindsay H. Brown ( or 212 318 3094) from Fulbright's Trusts and Estates Practice Group. Contact your Fulbright & Jaworski L.L.P. Trusts & Estates attorney to discuss the planning options most appropriate for you and your family.

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter[s].


Fulbright & Jaworski L.L.P. has offices in:

Austin, Beijing, Dallas, Denver, Dubai, Hong Kong, Houston, London,
Los Angeles, Minneapolis, Munich, New York, Pittsburgh-Southpointe, Riyadh, San Antonio, St. Louis and Washington, D.C..

Copyright 2012 - Fulbright & Jaworski L.L.P., all rights reserved.

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