Expiring Estate and Gift Tax Laws

Congress appears likely to battle over the estate and gift tax laws that are set to expire (sunset) by the end of this year.  It is quite possible that the status of various estate and gift tax laws may not be known until the final days of 2012 or possibly even into next year.  Keep in mind that if Congress does not act before year end, the following will occur.

Estate tax: The top tax rate goes up to 55% from 35%. A 5% surtax on the wealthiest of estates phases out the benefit of graduated rates.

  The unified credit exemption equivalent goes down to $1 million from $5,120,000.

  The deduction for family-owned businesses pursuant to Code Sec. 2057 is reinstated.

  The credit against state death taxes reverts to its prior credit.

Portability rules. The rules allowing a surviving spouse's estate to use a previously deceased spouse's unused exclusion amount will expire.

Generation skipping transfer (GST) tax. The GST tax is reinstated, with a top rate of 55% from 35%, and the GST exemption amount is set at $1 million (plus inflation adjustment) from $5,120,000.

Gift tax  The top rate increases to 55% from 35%.

Conclusion:  Accordingly opportunities may expire and taxpayers with large estates should be considering ways to utilize these reduced rates and higher exemptions now before they expire for good.