Use It or Lose It – The Estate Tax Exemption

Use It or Lose It - The Estate Tax ExemptionGiven the results of the 2012 General election and the current political makeup of the United States House and Senate, it is unlikely that the Legislature will act to extend the existing Unified Credit Gift Tax Exemption. This Exemption, which is currently $5,000,000 per person ($10,000,000 per married couple), is set to expire at the end of 2012.

Given the state of the economy and the political makeup of the Legislature and Presidency, it is unlikely that the exemption will continue at the existing rate. There government is looking to create as few tax benefits as possible in order to raise revenue to cover the budget deficit. Whether or not this means there will be a return to the lesser number previous era exemptions is unknown at this time. However, any transfers or gifts for estate planning purposes should be done prior to the end of the year, since the unified credit will most likely be lowered significantly as of 2013.

There are many ways to maximize the use of this benefit which involves certain discounting, appraisal as well as structural techniques that permit passing the equity of the asset at a lower value due to certain rights of the grantor retaining control. For individuals who are in a position to, or who wish to make such transfers now, present day transfers are treated as present value and any appreciated value over the years would not count towards the transferor since the assets were transferred into the transferees name at the lower present value. A proper structure should look to take advantage of this to the extent that it is able to.

Can you benefit from this chance to reduce future estate taxes?

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