Practice Area

Trusts and Estates


Estate Planning Opportunities Set to Expire in Six Months

June 2012

The Cost of Making Gifts After January 1, 2013 Will Increase Dramatically 

The next six months provide a short window of opportunity to make substantial gifts without incurring any gift tax. The Federal gift tax exemption is currently $5,120,000, enabling an individual to make aggregate lifetime gifts up to that amount without incurring gift tax (and twice that amount for a married couple). Unless Congress acts, on January 1, 2013, the Federal gift tax exemption will decrease to $1,000,000, and the maximum Federal gift tax rate on gifts in excess of that amount will rise from 35% to 55%, significantly increasing the cost of making gifts. Similar changes to the Federal generation-skipping transfer ("GST") tax rate and exemption will significantly increase the cost of gifts to grandchildren and more remote descendants.

In light of these pending changes, we recommend that you consider making gifts before year-end. By making gifts now, you can remove property from your estate, including any future appreciation on the property, and avoid estate tax on that property at your death. Gifts can be made outright or in trust and can be funded with a variety of assets, including cash, public or private securities, real estate and personal property such as art and jewelry. There are a number of techniques that can be used to structure gifts in order to preserve flexibility and control and to maximize tax advantages. For example, a donor can establish a "dynasty trust" to benefit multiple generations, with the potential to avoid transfer tax in perpetuity. To preserve flexibility, a married couple can set up a trust of which one spouse is a beneficiary. A donor with limited liquidity can consider creating a trust that holds a residence or valuable art.

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