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Trusts & Estates: 2012 - Unique year-end planning opportunities

September 7, 2012

Showdown at Year End or Avoid the Holiday Rush

On January 1, 2013, unless something dramatic happens, the country will face what Washington insiders term a “tax Armageddon.” On that date, the Bush era tax cuts will expire, income tax rates will rise, the favorable treatment of dividends and capital
gains will end, and estate and gift taxes will skyrocket.

Sometime after the election, Congress will meet and deal with these issues, either in a lame duck session or after the new legislative session begins. If action is not taken before the end of the year, we expect that the new legislation will probably be enacted
retroactive to January 1.

Our area of interest, federal estate and gift taxes, will receive scant attention in the national media, given the much larger income tax amounts that are at stake. Still, if no action is taken, the Federal estate and gift tax exemption will plummet from $5 million to $1 million, and the estate tax rates will peak at 55%, up from the current 35%. That makes the remaining months of 2012 an extraordinary opportunity. For the next several months, an opportunity exists to transfer wealth to family members and to reduce or eliminate the gift and estate tax burdens on those transfers. Gifts up to $10
million can result in tax savings over $3 million.

We know that very few married clients can or want to give up to $10 million to children and grandchildren. The fact that your goals may be more modest, however, does not mean that you cannot take advantage of this opportunity to some extent.

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