Gifting and the pending change in the tax code
If a person starts to gift in a year that the estate tax exception is 5 million will that be the person life time gift exception be 5 million because he starting gifting in a year the estate tax was 5 million? I have a client that is concerned with the possible estate tax change and the change to the life time gift exception. Any insight would be greatly appreciated.
Permalink Submitted by mk foss on Tue, 2012-07-31 16:40
The gift tax applicable exemption amount is $5,120,000 for 2012 – it reverts to $1 million without a law change next year. Only 2012 gifts get the $5+million so just starting a program is not enough to protect gifts made after 12/31/2012. The gift tax and estate tax amounts are currently unified – there’s been a question of how the large gifts this year will be treated if someone makes gifts now and dies when the exemption is only $1 million. Paying higher tax later on gifts made now is referred to as “clawback” – most experts think there will be no clawback. The way the estate tax is currently calcualted taxing into effect prior taxable gifts indicates there will be no clawback but neither IRS nor Congress has clarified the issue.
There is an annual exclusion as well as the $5,120,000 exemption so if someone had 4 beneficiaries that they wanted to benefit equally with 2012 gifts they could give each $1,293,000 and not owe any gift tax. That’s $13,000 for each plus the $5,120,000.