Estate and Tax Planning: Approaches & Opportunities in 2012
By Allison E. Evans, Becker & House, Scottsdale LIVING WELL Magazine
As we continue to move forward in 2012, there are a number of favorable federal tax provisions of which any financially-conscious reader should be made aware. Moreover, given that these tax provisions are set to expire at the end of the year, the amount of time to take advantage may be quickly running out.
First, the current estate and gift tax exemptions are the most generous to be seen in decades. At the dawn of 2012, the federal estate tax exemption was increased from $5,000,000 to $5,120,000 for estates of individuals dying this year. Correspondingly, both the lifetime gift tax exemption and generation-skipping transfer tax exemption increased to $5,120,000 per individual in 2012. These large numbers present a truly exceptional opportunity for wealthy individuals to gift assets to children and grandchildren without suffering tax consequences, so long as the gifts are made before the end of this year.
Simply put, 2012 is a good year to be giving things away. In 2013, unless Congress acts otherwise, sharp drops will be seen in the applicable exemption amounts. The estate tax exclusion and gift tax exemption are scheduled to plunge down to $1,000,000 per person, and the generation skipping transfer tax exemption will be reduced almost as drastically, to $1,300,000 per person. In addition, the top federal estate tax rate is scheduled to jump from 35% to 55% in 2012; identical increases are scheduled for the top federal gift tax rate and federal generation skipping tax rate. Thus, it goes without saying that now is the time to set up a trust for your grandchildren, or to hand over part of a closely-held business to another individual or entity, as opposed to waiting until next year.
The tax opportunities of 2012 do not only belong to the wealthy. Low-bracket taxpayers, meaning single filers with a taxable income of no more than $35,000, and joint filers with up to $69,000, have the benefit of a 0% capital gains tax. For these qualifying individuals, particularly retirees, it may be wise to cash in and realize some investment gains now, as opposed to waiting until 2013. For individuals in higher tax brackets with highly appreciated assets – for example, stock – a strategic option is gifting shares to non-dependent beneficiaries, such as adult children or elderly parents.
If any of the tax benefits currently available are applicable to you, letting them pass you by in the following months could be a critical and costly mistake. The year 2012 truly presents unprecedented tax advantages for a number of U.S. taxpayers. These benefits, however, have a limited existence, and the window of opportunity could be closing.
Allison E. Evans is an associate at Becker & House and focuses her practice on trust and estate litigation matters, including financial exploitation. She may be reached at 480-240-4020.
