The Estate and Gift Tax Laws May Be “A-Changin’”
(My apologies to Bob Dylan)

By Alan B. Cohn, Esq.
June 2012

Currently, the estate and gift tax exemption is $5,120,000 (adjusted for inflation from the original $5,000,000 amount). If there are no changes prior to the end of this calendar year, the exemption will return to the $1,000,000 level (adjusted for inflation). The estate and gift tax rates are now a flat 35%. If the law reverts back after the end of this calendar year, the marginal rate will return to 55% (also there is a 5% surcharge for large estates over $10,000,000). There is also a generation skipping tax exemption equal to $5,120,000) which shall also revert back to $1,000,000 (adjusted for inflation) after the end of this calendar year. The 2010 Tax Act inaugurated the concept of portability. This was a way that a surviving spouse could use the unused exemption of the deceased spouse at a later point in time. There were several limitations on its utilization, such as dealing with a second predeceased spouse. That portability concept in the 2010 Tax Act would also expire at the end of this calendar year. All of the above would take place at the end of this calendar year unless Congress affirmatively changes it, or at least enters a stop-gap bill to extend the numbers into next year.

In light of the fact that there is uncertainty as to what will happen after this calendar year, there are certain techniques which should be considered by taxpayers. It would be a good idea for all taxpayers to consult with their planners before the end of the year (don’t wait until the last minute), or if they don’t have planners, to obtain one. The major technique taxpayers should discuss with their planners involves gifting. There is a danger that the gift tax and generation skipping tax exemptions will return to $1,000,000, and therefore, many planners may recommend that wealthier taxpayers utilize their full $5,120,000 gifting and generation skipping exemptions before the end of the calendar year. While there is a risk that Congress could try to retroactively claim tax at death on the amount of the exemption utilized over the final exemption eventually chosen by Congress (assuming the chosen exemption is less than that currently allowed), this author believes that such risk is minimal and should not prevent a taxpayer who otherwise desires to utilize their full gift exemption from doing so. There are certain important decisions which must be considered before the gift is made. Also, in many cases valuations are necessary so please don’t wait until December to contemplate gifting.

While there is still a chance that the current gifting and estate tax exemptions will continue indefinitely, this author has learned one valuable lesson in the years he has been a practicing attorney, and that is “don’t ever try to predict what Congress will do.”

Alan B. Cohn, Esq. is a shareholder at Greenspoon Marder, where he concentrates his practice in the areas of Tax; Estate Planning & Probate; Guardianship; and Business & Corporate law. Mr. Cohn is Board Certified by the Florida Bar in the areas of Wills, Trusts & Estates. He can be reached at alan.cohn@gmlaw.com or 954-491-1120.