Update – 2011/2012 Federal Estate, Gift and Generation Skipping Transfer Tax
By Hoffman & Associates
December 2010 turned out to be an exciting month for estate and gift tax laws. On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”). The Act sets forth an exemption amount of $5,000,000 for federal gift, estate and generation skipping transfer taxes for years 2011 and 2012. In addition, the Act sets the top tax rate at 35 percent. The Act further provides for portability between spouses in 2011 and 2012 to utilize the unused estate tax exemption amount of the first to die of the spouses if the second spouse dies before 2013.
Since this Act is only good for 2011 and 2012, if Congress fails to act to extend this current law, the federal gift, estate and generation skipping transfer tax exemption amount reverts back to $1,000,000 and the top tax rate of 55 percent returns.
With this two year Act, there are many planning opportunities. Obviously, individuals can gift up to $5,000,000 without any federal gift taxes. Gifts can be made to a grantor trust (which means the trust income is attributable to the grantor rather than the trust) that allows the gift to grow without incurring income taxes. In the alternative, an individual can purchase a significant amount of life insurance coverage inside a life insurance trust utilizing the increased gifting exemption of $5,000,000 which can then pass free of probate, income and estate taxes to future generation.
Because the Act is only temporary, it is a good idea to review your current estate planning documents to make sure it stills accomplishes the goal desired. For more information regarding this or any other estate planning or tax concern, please contact us at info@hoffmanestatelaw.com or 404-255-7400.
