Spring 2012: Gift Planning Opportunities

The Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 (the “2010 Tax Act”) provides unprecedented gifting opportunities for 2012 for the transfer of family wealth.

The 2010 Tax Act increased the lifetime gift tax exemption to $5 million, indexed for inflation. In fact, the IRS recently announced that the 2012 gift tax exemption would be increased to $5.12 million. Under current law, to which we anticipate legislative modifications, estates in excess of $1 million would be subject to federal estate tax after December 31, 2012.

Some of the reasons for making gifts are the removal of future appreciation from an estate, and taking advantage of valuation discounting whereby the value of the assets gifted can be reduced if the asset is not readily marketable or represents a minority interest in the asset. Under the President’s current budget proposal, valuation discounting for gifts would no longer be permitted.

In addition, Massachusetts does not impose a gift tax but does impose an estate tax for estates with assets in excess of $1 million. Therefore, lifetime gifting may present opportunities for significant Massachusetts estate tax reduction.