Recently I posted a short answer about estate tax. I have had some follow-up questions. Here is a little more detail:
Estate planning remains stuck in limbo as a result. After 2012, the $5-million exemption for gift and estate taxes is scheduled to decrease to $1 million, while the maximum tax rate is slated to soar to 55%...the amounts in effect before 2001.
In addition, the portability of estate tax exemptions between spouses is set to expire after next year. This rule provides that after the death of one spouse, the survivor can lay claim to any unused exemption and make larger tax-free lifetime gifts or bequeath more assets free of estate tax.
Congress has done nothing to make the gift and estate tax rules permanent. So taxpayers and their advisers must plot their own course without a fixed set of rules.
Most experts expect Congress to extend the current system…the 35% flat tax rate, the $5-million estate and gift tax exemption and the portable estate tax exemption before they lapse. But the same experts claimed that there was no way that there would be no estate tax in 2010. So much for the experts!
For now, folks should weigh taking advantage of the higher gift tax exemption. Individuals can give away up to $5 million of assets free of gift tax now - $10 million for married couples. All the future income and appreciation on these gifts is removed from the donor’s estate, so you should give assets that you expect will soar in value.
Also, don’t ignore annual exclusion gifts. You and your spouse can each give $13,000 per year to any individual without eating away at your lifetime gift tax exemptions.
