Take Advantage of New Gift Tax Laws

The government has allowed people a reprieve from a hefty Federal Estate and Gift Tax but only for a short period of time. In order to prevent the Federal Estate tax from reverting to the 2002 levels (which allowed only $1,000,000 to pass to heirs other than spouses and charities), Congress passed and the President signed into law, at the last minute, the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 (the “2010 Tax Act”). The 2010 Tax Act allows an exclusion from the Estate Tax, upon death, of up to $5,000,000, but only if you pass away in 2011 or 2012. This $5,000,000 exclusion is also what is called “portable” meaning that for a married couple, if one spouse passes in 2011 or 2012 and leaves all of their assets to the survivor their exemption is not lost but the unused portion may be utilized by the surviving spouse, upon the second death, to pass up to $10,000,000, free of Federal Estate Tax.
One bright spot in the change to the law is that the Federal Estate and Gift Taxes are again unified, at least for the next two years. For the past several years the gift tax lifetime exclusion amount was capped at $1,000,000, while the estate tax exclusion amount rose from $1,000,000 up to $3,500,000 in 2009 and was eliminated altogether in 2010. For this year and next each person can gift, for Federal Gift Tax purposes, up to $5,000,000 during their lifetime without incurring any Federal Gift Tax. Again, this exclusion amount returns to $1,000,000 in 2013 unless the laws are again changed. This exclusion opens up a very limited portal for aggressive gifting strategies that can greatly reduce, or eliminate, the potential estate taxes for years after 2012, but this type of gifting needs to be completed before the end of 2013.
Please remember though, the above only concerns the gifting rules for Federal Estate and Gift Tax planning and does not take into account Medicaid or other Long Term Care planning issues, nor does it take into account income tax and capital gains tax consequences. Always consult a qualified advisor before making any substantial transfers.
Making financial decisions and changes without legal counsel, after the death of a loved one, could also result in extra, unnecessary, taxes being paid.
Poserina & McHugh focus on Elder Law issues. Robert Poserina and Andrea McHugh can help guide you through the legal issues of Medicare/Nursing Home Planning, Estate Planning, Wills, Trusts, Guardianships, Powers of Attorney, Probate, Estate Administration, Estate Litigation and Contested Wills. Located at 1029 Route 9 South in Cape May Court House. www.capemaycountyelderlaw.com