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ken
Senior Member
Posts: 142
Registered: 10-16-2002 Location:
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posted on 12-06-2012 at 10:40 |
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Lifetime Gift Tax Exemption Expiring Soon
As the deadline approaches for taking advantage of the government's $5 million gift-tax exemption, estate planners are dealing with the fear of "donor's remorse." Families are looking to set up so-called irrevocable trusts to pass along assets to their heirs without paying gift tax—but worry they will change their minds later in life or will need to get the money back one day.
An irrevocable trust can't be undone, making it one of the best ways to move assets out of an estate—and thus avoid estate taxes.
The estate and gift tax gift tax exemptions fall to $1 million;
The generation-skipping transfer tax exemption falls to $1 million, plus an inflation adjustment from 2001 to approximately $1,340,000;
The tax rate on transfers above the exemptions increases from 35 percent to 55 percent;
In the simplest terms, an individual can make a large gift in 2012 without owing any gift tax, while the same gift in 2013 would result in a large gift tax liability;
There are two consequences and benefits to the current situation:
✓ First, a gift in 2012 represents what could be a one-time opportunity to transfer wealth to children or other beneficiaries without paying a gift tax and to accomplish multi-generational planning without paying generation-skipping transfer tax.
✓ Second, these gifts can save estate taxes by removing the post-gift appreciation on and income from the gifted asset from an estate.
Estate having a net value of $5,120,000 or less is completely exempt from the estate tax (this tax-free result applies to the estate of a decedent who dies in 2012 and who did not make significant lifetime gifts). In addition, the increase in exemption allows individuals (regardless of the size of their estate) to make gifts during their lifetime of up to $5,120,000 before December 31, 2012, without incurring a gift tax. This tax exemption for lifetime gifts is in addition to, and does not include, smaller annual gifts of up to $13,000 or certain direct payments to schools or healthcare providers, excluded under a separate exclusion. Finally, the increased generation-skipping transfer tax exemption permits these gifts to benefit grandchildren and more remote descendants.
The increased exemptions apply only until December 31, 2012. Unless Congress and the President take action, the extensions expire and, as of Jan.1, 2013, the new exemptions and rates are as follows:
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