2012 provides a unique opportunity for making gifts using the federal estate, gift and generation skipping transfer (“GST”) tax exemption of $5,120,000 (reduced by any prior use of such exemption).
Unless Congress takes action, the exemption decreases to $1 Million on January 1, 2013 and there is a possibility that those who miss the opportunity will have lost the ability to make significant tax free gifts.
· Based upon the existing estate and gift tax rate of 35%, the additional taxes from not taking advantage of the gift exemption of $5.12 Million that could expire on January 1, 2013 as compared to the $1 Million gift tax exemption that is scheduled to be effective on January 1, 2013 could be over $1.4 Million.
· If estate, gift and GST tax rates are increased to 45%, additional taxes from not taking advantage of the $5.12 million tax exemption could be over $1.8 Million.
· For couples who each retain their $5.12 million of remaining gift tax exemption (total of $10.24 million), the potential gift tax savings by making use of the 2012 exemption could be as much as $3.7 million (assuming the gift tax exemption is reduced to $1 million and gift tax rates increased to 45%).
These computations disregard the additional tax benefits of removing future appreciation on assets gifted from future estate, gift and GST taxes.
If you believe you can afford to make gifts in 2012, you must carefully select assets to gift and understand the consequences if such gifts are determined to be undervalued in the event of an IRS audit.
For legal assistance, call a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.