Last year there was an incentive for people to give large gifts to their loved ones. The gift tax is unified with the estate tax, and in 2012 the unified exclusion was $5.12 million, and the maximum rate was 35%.
Throughout 2012, the existing laws would have resulted in an increase in the top rate to 55% and a reduction in the exclusion to $1 million in 2013.
Let’s say that you had $5 million in total wealth. You could give substantial gifts to people who would otherwise be inheriting these funds in 2012 tax-free. Assuming the exclusion did go down to $1 million in 2013, you would miss out on opportunity if you didn’t give these gifts during 2012.
Because of the above many people did give gifts last year, and when you give taxable gifts you must file Form 709 with the Internal Revenue Service. They keep track of the gifts that you give so that they know how much of the exclusion you have utilized.
According to a recent estate planning article on the Forbes website, the IRS will be receiving more than twice as many of these forms for the 2012 tax year than they did for the previous year.
It should be noted that in hindsight the $1 million/55% scenario did not materialize. After the passage of the American Taxpayer Relief Act of 2012, the existing estate tax exclusion was retained, with the $5 million that was put into place for 2011 holding sway with ongoing adjustments for inflation.
After the adjustments the 2013 exclusion is $5.25 million, and the top rate of the estate and gift taxes has been set at 40%. Since the maximum rate last year was 35% people who gave gifts in excess of the exclusion amount did realize some savings by giving gifts in 2012.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.