Without federal legislative intervention before the New Year, the current generous gift tax exemption of $5.12 million could revert to $1 million. People in Sacramento seeking to pass along their financial assets might want to calculate the effect a vastly reduced exemption threshold could have on their estate plan. Many estate planning advisors are encouraging wealthy clients to take advantage of the current higher limits now in order to avoid unnecessary taxation.
Until December 31 of this year, the lifetime gift tax exemption limit is $5.12 million for individuals, and the limit for couples is $10.24 million. To reduce further taxation on their estates, individuals can also make annual gifts of up to $13,000 per beneficiary without reducing the exemption amount.
These generous exemption amounts probably will not last long, however. Unless Congress votes to extend the current levels, the exemption will fall back to pre-2012 allowances. Those limits were $1 million for individuals and $2 million for couples.
The likelihood that lawmakers will enact laws affecting estate and gift tax exemptions before this year’s election is low, say a number of estate planners. But even if Congress acts after November, some expect that the gift-tax limit will still be reduced.
Because of this expectation, estate planners are encouraging clients to begin developing a giving plan now in order to take advantage of the higher limit. The decisions involved in giving large gifts should be carefully considered and not left until the last minute. In addition, it is important to balance tax considerations against how much money a person can pass on to beneficiaries while leaving enough to live on comfortably.
Source: The Wall Street Journal, “A Golden Age of Gift Giving,” Kelly Greene, May 25, 2012.