Gift Tax Exemption Amount Gets Even Better Through 2012

I have been posting quite a bit this past year on gifting and the fact that transfer taxes are on sale for a limited time only - it's like a 2 year long Black Friday or Cyber Monday for families with taxable estates.  The sale gets even better in 2012 - the IRS just announced that the federal Gift Tax Exemption Amount is being increased to $5,120,000, from $5 million, due to adjustments for inflation.

First, and as an aside, I think that adjusting the estate, gift, and GST exemptions for inflation each year is eminently logical.  Of course, these logical increases have been created in a temporary tax law, so don't go thinking that Congress was so genius in putting all this together.

Second, the Estate Tax Exemption Amount and GST Exemption Amount are increasing as well. But since you have to die to take advantage of the Estate Tax Exemption Amount, that is not quite as headline worthy.

What does the increased Gift Tax Exemption Amount mean?  Well, for wealthy families, particularly those where they own closely held businesses or real estate, or other appreciating assets, there is a window of time through 2012 where large gifts can be made without paying gift tax.  This means that all the lovely appreciation on the asset following the gift will flow transfer tax free to the children.  Due to the Gift Tax Exemption increase, in 2012 you can give $120,000 more than in 2011.

I was just interviewed on this subject by NJBiz.  The theme - there may be a limited window of opportunity to take advantage of these tax laws. Analyzing the pro's and con's is time consuming and complex so families that think this might be good fit for their wealth planning goals should start examining their options now.


Image: Grant Cochrane /

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