The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 substantially modified the laws regarding the estate tax, gift tax and generation-skipping transfer tax and extended the Bush-era tax cuts for two years. At the conclusion of 2012, the Act sunsets and we will face the same uncertainty in 2013 that the Act was meant to address in 2011.
Current provisions specifically related to estate taxes, gift taxes, and GST taxes include:
If Congress does not act, the transfer tax laws will revert to 2001 levels – $1 million ($2 million for a married couple) estate tax exemption, gift tax exemption and GST exemption with a 55 percent top tax rate. In addition, the GST exemption will be indexed for inflation and the estate tax exemption will not be "portable" between spouses.
If Congress does act, the law may not be as favorable. On Feb. 13, President Obama released his budget proposal for 2013, which provides in part:
Congress may limit the use of grantor retained annuity trusts and family limited partnerships.
There is no guarantee that the current exemptions and tax rates will continue to be available after Dec. 31. If you have excess assets that you can afford to live without, you may wish to consider making large gifts to your loved ones by the end of 2012. By making gifts this year, you can shelter assets from federal gift, estate, and GST taxes.
Strategic use of the gift tax exemption and GST exemption now can create significant wealth-transfer tax savings and the opportunity for additional wealth accumulation for (i) children and, if desired, (ii) subsequent generations for years to come, free of additional estate taxes, gift taxes, and GST taxes with the use of a trust. A gift to a trust also provides creditor protection and may limit or control the access a family member/beneficiary may have to the funds placed in trust.
Also with grantor retained annuity trusts and family limited partnership techniques still available, they should be considered and used as appropriate in conjunction with the other gifting techniques.
If you would like more information or would like to review your estate plan, please contact a Houston or Dallas attorney in the Trusts and Estates Practice of Gardere Wynne Sewell LLP.