Tax Relief Act of 2010 Opens Window for Gifting

The year 2010 was often called "the best year to die rich." Let me be the first to coin 2011 and 2012 as "the best years for the rich to gift." Estate tax levels were set to revert back to pre-2001 levels at the end of the 2010, but, thanks to the last minute actions of the current administration, the estate tax holiday was extended through 2012.

This extension, with the passing of the 2010 Tax Relief Act (TRA), provides significant estate planning opportunities to consider. With the passing of the TRA, not only are the individual estate tax exemptions extended ($5 million/individual or $10 million combined portable marital exemption), additionally the gift tax exemption was unified with the estate tax exemption. In other words, you don't have to die to take full advantage of this 2 year extension!

In 2010, the gift tax exemption was limited to $1 million, and taxed at up to 35% thereafter. For 2011 and 2012, an individual or married couple can make tax exempt gifts up to $5 million (individual)/$10 million (couple). Keep in mind this gift tax exemption is unified with the estate tax exemption, thus any amounts passed by gift or estate over and above these amounts will be subject to the applicable gift/estate tax rates in place at that time.

However, given the uncertainty of how long these exemptions will last, gifting over the next two years is an attractive consideration. This two year window is not only an ideal opportunity to reduce the size and tax exposure of your estate, it is also as favorable of a climate we have seen for transitioning family businesses.