Gift Tax & New Tax Legislation
As we move forward into the new year all of the details of the new tax relief legislation are coming into clear focus. The most significant facts that are applicable to estate planning involve the exclusion amount and the rate of taxation. The estate tax was repealed throughout 2010, but under the tax code as it existed until mid-December it was set to return in 2011 with an exclusion of just $1 million and a maximum rate of 55%. If you are wondering how it is possible to logically defend a tax that takes more than it leaves, you are not alone.
These existing parameters were a topic of debate in Washington throughout the year, and there was finally some movement that resulted in the legislation that was signed into law by the president on December 17th. Rather than the $1 million that was anticipated, the estate tax exclusion is now set at $5 million for 2011 and 2012, and the maximum rate of taxation is 35%. A 35% federal levy on money that was left over after you paid income tax throughout your life is pretty tough to defend in its own right, but it is a step in the right direction.
In addition to this “headline news,” the new tax measure includes some additional revisions that impact estate planning. One of these is the fact that the gift tax exemption was been raised to $5 million to match the estate tax exclusion. It had previously been just $1 million and many observers questioned why it would be less than the estate tax exclusion considering the fact that the two are unified under the federal tax code.
In addition to the $5 million lifetime exemption, the $13,000 annual per person gift tax exemption remains in place. So you can still give as much as $13,000 per year to an unlimited number of recipients free of the gift tax, and these gifts do not count against your unified gift/estate tax exclusion.
