The 2010 Tax Relief Act which was signed by the President in December 2010 increased the estate tax exemption to $5,000,000 per person. The bill also increased the lifetime applicable exclusion for gifting from $1,000,000 which it had been for several years to $5,000,000 per individual. While the estate tax exemption gradually rose from $1 million in 2002 to $3.5 million in 2009, the lifetime gift tax exemption had not budged from $1 million. During 2011 and 2012 an individual can elect to make gifts up to $5,000,000 during their lifetime without the payment of any gift tax. If you exceed the annual gift tax exclusion amount in any year ($13,000 per individual), you can either pay the tax on the excess or take advantage of the unified credit to avoid paying the tax. The unified credit enables you to give away $5 million during your lifetime without having to pay gift tax. By using the unified credit during your life, you’ll reduce the amount available to offset the estate tax upon your death.
This is a great opportunity for parents to gift investment property to children for the appreciation of the asset to grow in the children’s estate rather than their own and for same-sex couples to shift assets. It should be noted this opportunity may exist for only two years and individuals or couples with larger estates should explore the opportunity to shift wealth to younger generations.
