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Preferential gift and estate
tax treatment afforded under current law is set to expire on
December 31, 2012. You should consider taking steps now to take
advantage of the favorable tax laws before year-end.
Under current law for 2012, each person has the ability to gift
or dispose of assets at death of up to $5,120,000 without the
imposition of a gift tax, estate tax or a generation-skipping
transfer tax. To the extent a gift or estate exceeds the exemption
amount of $5,120,000, a transfer tax is imposed at the reduced rate
of 35%.
Unless Congress passes new legislation, the amount that can pass
free of gift or estate tax will revert to $1,000,000 on January 1,
2013. Transfers in excess of this amount will incur gift or
estate tax at much steeper rates, reaching 55 percent at
$3,000,000.
Planning Opportunities
for 2012
Outright
Gifts. The increased $5,120,000 gift tax
exemption creates an opportunity to give away up to $5,120,000 of
assets by the end of the year without paying the 35% gift
tax. In addition, gifts in excess of the $5,120,000 exemption
amount will be taxed at the lower 35% rate. Furthermore,
under current law (which legislators have proposed changing), gifts
of fractional interests in real property and minority interests in
businesses may be "discounted," or valued to reflect the
lack of marketability and control associated with the gifted
interest. For example, a gift of a 20% interest in a business
worth $10,000,000 might be valued for gift tax purposes at
$1,500,000 rather than $2,000,000.
Gifts in
Trust. If you are not yet ready to
transfer significant wealth to your children or grandchildren
outright, consider making such gifts in trust which can become
available to your designated beneficiary at a chosen age or be
maintained for generations.
Life Insurance
Trusts. Consider transferring existing
life insurance policies to a trust for the benefit of your children
or contributing funds to a trust to purchase a new policy.
The policy proceeds received by the trust can be distributed at
your death or at a later time. In addition to avoiding estate tax
through the use of a life insurance trust, insurance policies have
attractive income tax benefits.
QPRT
Trusts. Qualified Personal Residence
Trusts are a perfect way to transfer your primary home or vacation
home to your children over time. As a result of depressed
real estate prices, now is an opportune time to gift a
residence.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Internal Revenue Service has recently published an IRS Large Business & International Directive, which updates an earlier directive to field agents addressing the examination of capitalization and repair costs issues.
A state cannot include income in the apportionable base and then exclude the receipts and related factors that generated that very same income from the apportionment formula.
