The year is rapidly coming to a close and when it does the unified gift/estate tax exclusion is going to be reduced to just $1 million.
This is a very significant reduction because the exclusion has been $5.12 million throughout 2012.
Because of the above giving gifts in 2012 can provide you with tax efficiency if your resources exceed $1 million in value. Once the new year arrives anything that you were to give away while you are alive or after your passing that is in excess of $1 million would be taxable at a maximum rate of 55%.
You could of course simply give gifts in any form to family members directly to take advantage of this window of opportunity. However, there are other ways to use the expanded exclusion before 2012 ends.
People will sometimes create family limited partnerships to enable transfers of assets among family members at a reduced rate of taxation. However, when you give funded partnership shares to family members you are engaging in taxable acts of gift giving.
It would be possible to take advantage of this larger exclusion that we have for the rest of this year by giving gifts of partnership shares to family members before 2013 arrives.
There are also certain types of trusts such as dynasty trusts that people fund for the benefit of their loved ones. The act of funding such a trust is considered to be a taxable instance of gift giving as well. You could choose to fund a dynasty trust (or another type of irrevocable trust) before the end of this year to take advantage of the larger exclusion before it is reduced.
John Kuhn, Estate Planning Attorney
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