While only in place through the end of 2012, new estate and gift tax provisions were enacted and signed into law last December, that will enable people to do some estate planning at long last. We should see more lifetime gifting in the next two years before we are faced with another expiration date.
Here are several key provisions:

  1. The federal applicable exclusion amount has been increased to $5 million per person and now can be utilized fully for either lifetime gifts or property passing at death. This should make lifetime gifting outright or through trusts more attractive over the next two years.
  2. The unused estate tax applicable exclusion amount at the death of one spouse can be utilized by the surviving spouse if both spouses die before 2013.
  3. The top tax rate for gift, estate tax and GST purposes is 35% for the next two years.
  4. The GST (Generation Skipping Tax) will also increase to $5 million per person over the next two years.
  5. The carry-over basis rules are back so that at death, the decedent’s assets will receive a new cost basis of fair market value at date of death. Of course, in Arizona, the survivor’s half of community property also receives a stepped up basis.

The bad news out of this is that the 2010 act sunsets at the end of 2013 unless Congress extends, modifies or provides a totally new tax act. If Congress does fail to act by then, matters will revert back to pre-Bush tax cuts and the applicable exclusion amount drops back to $1 million per person, and the maximum rate increases to 55%. For those wanting some certainty in their planning lives, then some lifetime gifting over the next two years is in order. Let us know if you have any questions.
Michael W. Margrave