Estate planning attorneys have been preparing for the end of 2012 for quite some time. No, it has nothing to do with what some people claim will be the end of the world according to the Mayan calendar, but rather the expiring of the $5.12 million gift tax exemption that ends on December 31, 2012.
As the law stands right now, individuals are allowed to give up to $5.12 million in estate gifts without those gifts being subjected to additional taxes. Come January 1, the $5.12 million exemption will be reduced to the traditional $1 million exemption. This represents a significant change in estate and gift taxes, which is why estate planning attorneys are expecting to work extra hard during the final months of the year.
Taking advantage of the gift tax exemption, however, often requires months of preparation. This means that if you wait until the end of the year, you may already be out of luck. Under the current laws, individuals can give up to $13,000 per year to other individuals as gifts. As long as the lifetime total of such gifts does not exceed $5.12 million, those gifts will not be taxed.
Once the new $1 million level takes effect, gift taxes over the $1 million amounts will be subject to a 50% taxation rate. Anyone with any significant amount of assets should schedule an appointment with their estate planning attorney as soon as possible to begin give tax planning.