Should you exploit the newest $5 million lifetime gift exemption?
Posted at by ifydcat on category FinanceAt the end of 2010, Congress reunified the estate tax, gift tax and generation-skipping tax (GST), giving them all top rates of 35% with $5 million lifetime individual exemptions.1
Furthermore, the estate and gift tax exemptions are portable between couples. Upon the death of just one spouse, the executor in the estate can elect to transfer any unused portion of the $5 million individual exemption for the surviving spouse.1
Right now, these tax rates and generous exemptions apply by means of 2012. In 2013, points could alter. So estate planning and tax planning specialists are alerting their potential customers of this strategic window.2
The important news: the $5 million lifetime gift tax exemption. For married couples, the lifetime gift tax exemption is actually $10 million because of the portability factor. This year, the lifetime gift tax exemption was down at $1 million – and yes it wasn’t portable.3,4
If you consumed the prior $1 million lifetime gift tax exemption just before 2011, you can gift as much as $4 million a lot more before 2013 given the new $5 million limit. (The lifetime gift tax exemption is going to be indexed for inflation beginning in 2012).2 Read more at how to invest
So taking into consideration all of this, the top question for you is: should you provide around you’ll be able to for a children prior to 2013 with the intent of reducing inheritance taxes as time goes on?
In the end, lifetime gifts reduce your taxable estate. Additionally, if you give your sons or daughters appreciated securities, the long-term capital gains of these securities will probably be taxed at their capital gains rates in lieu of yours. If your children’s income puts them in the 10% or 15% tax bracket, their capital gains tax rates are 0% via 2012.1,4,5
Portability means excellent flexibility – supplied you play by the principles. Let’s illustrate how this works. Dad does not gift as much as $5 million during his lifetime – he only ends up gifting $3 million. Well, Mom can subsequently gift approximately $7 million soon after he passes thanks to the portability rules, since there would be $7 million to go toward the $10 million lifetime gift tax exemption for the married couple.
It has an important rule you have to follow to understand this portability: once the 1st spouse dies, the executor of his / her estate must file an estate tax return even though no estate tax is owed. That estate tax return formally notifies the IRS that you’re transferring the unused or partially used gift tax exemption.four,
Incidentally, this estate tax return is due nine months following your death of stated spouse, using a six-month extension permissible.
Do families want bypass trusts anymore? We can’t say goodbye to them, due to the fact 15 states still levy their particular estate taxes with exemptions frequently at $1 million or under. Moreover, you never know if portability will probably be permitted five or ten years from now?
The potential for savings may be excellent. When you look at this remarkably generous lifetime gift tax exemption allowance in light of certain estate planning strategies which may leverage it – for example the grantor-retained annuity trust and also the family limited partnership – the possible is intriguing.
The issue: we do not but determine what 2013 will take. Yes, Congress could keep the $5 million lifetime individual exemption and portability for 2013 and beyond. But if Congress lets this sunset, we’re back to a $1 million individual lifetime gift tax exemption without any portability (check how to invest).