Estate Planning Window of Opportunity

Last updated on April 22nd, 2022 at 11:47 pm

The current estate, gift and generation-skipping transfer (GST) tax exemptions are $5 million per taxpayer for the remainder of 2011 and 2012. The top tax rate for estate, gift and GST transfers is a mere 35 percent through 2012. Federal law also includes “portability,” which means that a surviving spouse of any individual who dies in 2011 or 2012 may “use up” any amount of the deceased spouse’s unused $5 million estate tax exemption by making larger lifetime gifts during this window.

A perfect storm of depressed asset values (think closely held business interests, real estate and securities), historically low interest rates and unprecedented transfer tax laws provide business owners and families a window of opportunity to transfer a greater amount of wealth to younger generations at a very low tax cost. This opportunity exists because tax liability on transferred assets is largely determined by the fair market value of the asset at the time of transfer.

Taxpayers can achieve a favorable tax result using estate planning techniques that enable them to “freeze” the current value of an asset for transfer tax purposes, as well as shift any future appreciation to younger generations free of estate and gift tax.

Current estate and gift tax exemptions are scheduled to be reduced to $1 million per taxpayer (and $1.4 million per taxpayer for GST exemption) as of Jan. 1, 2013, and possibly sooner. In addition, the top transfer tax rate is scheduled to rise to a whopping 55 percent, the “portability” feature will cease to exist, and commonly used “freeze” techniques could be drastically restricted. In addition, as asset values recover, the objective transfer tax benefits will be less significant, and adopting a wait-and-see approach could end up as a missed opportunity.

There may be no better time than right now to make gifts and explore whether certain estate planning techniques could benefit you. To learn more, contact your estate planning attorney from a law firm like CunninghamLegal.

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