G.R. Reid Blog G.R. Reid Associates LLP - G.R. Reid Wealth Management, LLC - G.R. Reid Health Management, LLC - G.R. Reid Insurance Services, LLC - G.R. Reid Consulting, LLC - Woodbury, New York - Great Neck, NY





Our news articles are posted on a regular basis to give our clients relevant and timely information about matters pertaining to our financial services. Browse through our current and archived articles to learn more.

Time Is Running Out to Utilize the Full $5.12 Million Gift Tax Exclusion Expiring 12/31/12

Preferential gift and estate tax treatment afforded under current law is set to expire on December 31, 2012. Individuals with assets in excess of $1 million should consider taking steps now to take advantage of this favorable tax law before year-end.  Under current law for 2012, estate tax exclusion amounts are $5,120,000 per individual and $10,240,000 per married couple, and the top tax rate for estates, in excess of the exclusion amount, is 35 percent. Concurrently, since the gift tax has been reunified with the estate tax, an individual’s exclusion may be used for gifts during life or for assets passing upon death. Lifetime gifts over the exclusion threshold will be taxed at 35 percent. Further, there is still a $5,120,000 million generation-skipping tax (“GST”) exemption for 2012. This increased generation-skipping transfer tax exemption permits these gifts to benefit grandchildren and more remote descendants.

Unless Congress passes new legislation, the amount that can pass free of gift or estate tax will revert to $1,000,000 on January 1, 2013.  Transfers in excess of this amount will incur gift or estate tax at much steeper rates, reaching 55 percent at $3,000,000.  This means an effective $4,000,000 reduction on the opportunity to transfer wealth on a tax-free basis per individual.

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 multigenerational planning without paying generation-skipping transfer tax.

In addition, other issues that arise from the tax cut extensions include the following:

  • Every will, revocable trust, and power of attorney should be reviewed for formula clauses and percentage allocations, among other things, that may no longer work as expected.
  • State transfer taxes must be carefully considered, as they have a significant impact on costs and payments.
  • Should you continue rolling GRATs or just make outright gifts?
  • Can you eliminate or lessen guarantees on trust obligations by adding additional gifts to the trust using the new $5,120,000 exclusion?
  • What role should discounted gifts play in your estate planning strategy?
  • Is it worthwhile to freeze assets now to remove future appreciation from an estate?
    There can be a great benefit to setting up a lifetime spousal bypass trust or a lifetime QTIP Trust.
  • Is it time to gift higher cash value policies to an irrevocable life insurance trust, something that could not have been done in the past due to the lower gift tax exemption?

Leave a Reply