CPA & Business Advisory Blog

What You Can Do Now to Save on Estate and Gift Taxes Later

There’s one word that can be used to describe the stock market as well as estate and gift tax laws over the past few years and that is “volatile”  Unfortunately, volatility often scares clients into taking the “wait and see” approach but in reality, there’s no time like the present to do some estate planning and make lifetime gifts.

What are the current laws:

  • Beginning January 1, 2011, the federal estate, gift, and generation-skipping transfer tax exemptions were all set at $5 million with a top rate of 35% — but only for the years 2011 and 2012.
  • In July 2011, the Ohio General Assembly repealed the Ohio estate tax, effective for all deaths on and after January 1, 2013.
  • Portability – for the first time, one spouse can leave their unused lifetime exemption to their surviving spouse upon their death automatically.  In the past this ability was only available with specific estate planning documents.  With the individual exemption amount at $5 million, the full estate exemption could be as much as $10 million to the surviving spouse. 

What lies ahead:

  • Beginning on January 1, 2013, the federal estate tax exemption is scheduled to plummet back to $1 million (adjusted for inflation from 2001 to roughly $1.5 million), the estate tax rate is scheduled to jump back to 55% on amounts above the exemption, AND there will be no portability.  OUCH!

What you can do now to save on estate and gift taxes later:

  • If you own assets you expect to grow faster than 1.4%, now is a great time to use them in your planning.  Many sophisticated planning techniques rely on an interest rate set by the IRS (Applicable Federal Rate, or AFR).  That rate is now 1.4%, which is the lowest in history.
  • Make intra-family loans (e.g. from parent to child) or refinance existing loans.  Again, these loans are based on an AFR of 1.4%.
  • If you have considered making a large lifetime gift, make it now.  With the gift tax exemption at $5 million and depreciated values in your investment portfolio, a gift now will remove any future appreciation out of your estate.
  • Regardless of the size of your estate, file a Form 706 – Estate Tax Return for a deceased spouse.  Currently, portability must be elected on a timely filed Form 706.

With all of the recent law changes and talk about the “Super Committee” being tasked with proposed deficit cuts, now is a perfect time to plan.  Have questions about what you can do now to save on estate and gift taxes later? Post a comment below or contact our Tax Planning and Preparation Group at 440-449-6800.

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