Tax Alert! Special Gifting Opportunities

Written by the American Academy of Estate Planning Attorneys
Compliments of Morris Hall


If you think only the super-rich need to worry about estate and gift taxes, you may want to think again. As of January 1, 2013, individuals with estates larger than $1 million might once again be subject to these federal taxes.

A Little Background

In December 2010, Congress passed a set of laws known as TRA 2010. These laws extended the Bush tax cuts until midnight on December 31, 2012.

Under TRA 2010, individuals with estates under $5.12 million are not subject to federal gift or estate tax. However, if Congress allows TRA 2010 to expire, estates larger than $1 million will become taxable at the beginning of 2013.

What Can You Do?

One option is to gift a portion of your estate. Between now and December 31 2012, an individual can gift up to $5.12 million (and a couple can gift up to $10.24 million) completely gift-tax free. This strategy is straightforward and works well if you are comfortable giving away a significant portion of your assets during your lifetime. But what if you don’t want to give away millions just to reduce your tax bill?

Another way to preserve your estate is to lock in the current estate tax exclusion using a well-planned trust. Here’s an overview of how this strategy works:

  • You put your money into a trust for your spouse or partner, removing them from your estate.
  • Your spouse or partner can act as trustee, making distributions to him- or herself, subject to certain restrictions.
  • The trust assets are available for your spouse or partner to use and enjoy, but they are not included as part of his or her estate.
  • You have the option to name your children or others as trust beneficiaries, as well.

If you are married, or if you are in a long-term relationship, you and your spouse or partner can even set up trusts for each other. Certain rules must be followed so that your trusts avoid the “reciprocal trust doctrine” and your estate planning attorney can explain how this is done. Using this strategy, you could shelter a total of $10.24 million from estate taxes.

Timing is Everything

The clock is ticking. No one knows what Congress will do between now and the end of this year. One thing is certain: you have until December 31 to complete the planning and gifting necessary to benefit from what the law currently allows. It can take several weeks for an experienced estate planning attorney to complete the work involved in establishing a trust and transferring all the necessary assets, so do not delay talking to your Morris Hall estate planning attorney to choose a course of action.