Is making gifts in 2012 appropriate?

The year 2012 is an important year for planning to make gifts to your children or other individuals. You may be aware that at the beginning of 2011, the lifetime exclusion for federal estate tax purposes was raised to $5.0 million (adjusted for inflation at $5.1 million in 2012). This is not only the amount used against the assets that you own at your death, but it is also the exclusion for gift tax purposes and for generation skipping purposes (where you may give a gift or bequest to a grandchild, skipping your children’s generation). When this law was enacted, it was to be in place for a two year period, expiring on December 31, 2012. If Congress does nothing to extend the law, the exclusion amount will be reduced to $1.0 million. With everything facing Congress this year, who can say what they will do in the rest of the year.

The point is that for people whose estates may be above $5.0 million and growing, it may be advantageous from a tax perspective to make those gifts before the end of 2012 to take advantage of the $5.0 million exemption, which may end up at $1.0 million if Congress fails to act. In addition, the top rates for estate tax will also be bumped up to 55%, again if Congress fails to act.

There is no gift tax in Illinois, only an Illinois estate tax. As of the first day of 2012, the Illinois credit for Illinois estate tax was raised to $3.5 million in 2012 and $4.0 million in 2013 and thereafter.

As a result of these laws, there may be some tax planning opportunities, making gifts made in 2012 very attractive. Consult your tax attorney to see if this would be helpful to you.