2012 Estate Planning: The Greatest Year Ever?

The year 2012 may prove to be the greatest year ever for estate planners. We can only speculate as to what Congress may do in the months and years ahead, but we know what the laws are now. In 2001, Congress enacted, and President George W. Bush signed into law, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). EGTRRA was extended by Sec. 302 of P.L. 111-312. The effect of EGTRRA and its amendment was to bring the applicable exclusion amount (AEE) (the amount that can be transferred estate- and gift-tax free) from $675,000 (the rate in effect in 2001) progressively to $5,120,000 ($10,240,000 for married couples) in 2012. EGTRRA also reduced the tax rates from a top rate of 55 percent down to 35 percent in 2012. The law is set to sunset beginning in 2013 and revert to what it would have been in 2002 ($1 million and 55 percent) unless Congress acts to change this course.

Whether the law will revert to an AEE of $1 million, $3.5 million, $5 million or some other amount is for Congress to decide. But, regardless of what Congress might do before year end, or even after year end, now is the time to take advantage of the $5,120,000 AEE and the top 35 percent tax rate on gifts before the AEE may revert back to $1million and a 55 percent marginal tax rate. Planning considerations including outright lifetime gifting, GRATs, IDGTs and others should be considered.

Lifetime Gifting