Uncertainty Looms in Estate Planning: Taking Advantage of Expiring Estate and Gift Tax Exemptions

Uncertainty Looms in Estate Planning: Taking Advantage of Expiring Estate and Gift Tax Exemptions

In 2010, Congress acted to increase the estate and gift tax exemptions to $5 million for individuals ($10 million for married couples) through the end of 2012. Congress also lowered the maximum estate and gift tax rate to 35% for the same length of time. As this year comes to an end, it is still uncertain what will happen to these exemptions and tax rates starting in 2013, although there has been speculation on the matter.

If Congress decides to do nothing and let the current exemptions lapse, the estate and gift tax exemption will fall back to the $1 million and 55% levels; some speculate this will happen. Others think the exemption may fall to $3.5 million, or somewhere in between the $1 million and $5 million levels. Still, others speculate that Congress will extend the current exemptions and rates, keeping them at $5 million ($10 million for married couples) and 35%.

Estate and Gift Tax ExemptionsEstate and Gift Tax Exemptions

Given the uncertainties of an election year, it seems more likely that Congress will extend the current exemptions and tax rates rather than let them fall back to $1 million and 55%. Congress has to decide a series of other tax issues, including all of the Bush tax cuts, higher AMT exemptions, payroll tax cuts, state sales tax write-offs, and more. With all of these issues looming, it would seem most efficient for Congress to extend the current exemptions and tax rates for another year, and then make a decision on the estate and gift tax issues. However, we will not know for certain what Congress will do until after the elections later this year.

Despite these looming uncertainties, there is something we do know for certain–that there will be a $5 million (adjusted for inflation to $5,120,000) estate and gift tax exemption for every person, and a maximum estate tax of 35% through the end of 2012. In other words, it is important to take advantage of these exemptions and rates while they are here, because there is no guarantee these exemption amounts will exist after 2012. Also, keep in mind that you can also gift $13,000 ($26,000 if married) this year without reducing your lifetime gift tax exemption and without having to file a Form 706. Next year that amount will increase to $14,000 ($28,000 if married).

Regardless of what happens after the elections, it is important to be proactive in your estate planning. For larger estates in excess of $10,000,000, acting now will ensure you take full advantage of the current estate and gift tax exemptions and rates, and ultimately have more control over your estate planning.

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