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Federal Estate & Gift Tax

The estate of an individual who dies in 2012 has a $5.12 million estate tax exemption. The tax after that is a flat 35%. An estate also allows the federal income tax basis of inherited capital gain assets to be stepped up to reflect fair market value on the date of death. A death in 2012 also has a provision that allows a married individual to pass along any unused portion of their estate tax exemption to their spouse.

At the present time, the estate tax exemption is scheduled to decrease to $1 million with a top rate of 55% on January 1, 2013 unless Congress acts prior to that time. President Obama has suggested a $3.5 million estate tax exemption.

An individual can also make gifts during 2012 that offset the future estate tax exemption of up to $5.12 million. This is also scheduled to expire at the end of the year and will revert back to $1 million unless Congress acts.

An individual can make gifts to an unlimited number of individuals of up to $13,000 per person without being counted against the estate tax exemption. A married couple has the ability to make a gift to an individual of $26,000.

If you anticipate having an estate that exceeds the $1 million amount or possibly $3.5 million if Congress were to act on that amount, the possible estate tax savings of making gifts this year could be huge. It is important to coordinate any new gifting with your current estate plan and should be coordinated with legal counsel.

Disclaimer: The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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