Many tax laws passed in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”) will expire on December 31, 2012. Under this current law, each individual has a federal estate tax exemption of $5.12 million, and the federal estate tax rate is 35%. This means that spouses could give away a total of $10.24 million whether during their lifetimes or upon the death of either spouse with no gift or estate taxes incurred, and each dollar after that would be taxed at 35%.
If Congress takes no action on this matter before January 1st, then the laws we wake up to on New Year’s Day will be quite different – the federal estate exemption will fall to $1 million, and the federal estate tax rate will increase to 55%. This means that spouses with a combined estate of $3 million would pay no federal estate tax if they both died on December 31st, but $550,000 if they both died on January 1st with a properly structured estate plan.
As a result, many of our clients with family assets exceeding $2 million or individual assets exceeding $1 million are considering making gifts prior to the end of the calendar year. It is very important that these gifts are structured correctly and that the gift is completed prior to January 1st. It is also important to remember that the taxable estate includes assets such as life insurance proceeds, retirement assets and equity in real estate, not just cash and investment accounts. Please contact us immediately if you are interested in making a transfer.