Elder Law Estate Planning Legal Topics New Legal Developments Tax Law

Estate and Gift Tax System Reunified in 2011: A Trap for the Unwary?

Beginning in 2011, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (.pdf) (Pub L 111–312, 124 Stat 3296) eliminates the separate $1 million lifetime gift exemption. Donors can now make taxable gifts up to the estate tax applicable exclusion amount of $5 million with no gift tax. 

Annual exclusion gifts don’t count. Donors can still give up to $13,000 per year per donee ($26,000 for married couples) free of estate and gift tax.

Beware! The estate tax law “sunsets” on December 31, 2012. Unless the law is further amended in the meantime, the exclusion reverts to $1 million in 2013. Lifetime gifts in excess of that amount would then be subject to estate tax in the donor’s estate, even if there was no gift tax when the gift was made.

Of course, that may not happen. But for now—until the law is made permanent—donors may be well advised to limit taxable gifts to $1 million. In other words, the more things change, the more they stay the same.

The Act is briefly summarized in the December 2010 issue of the CEB Estate Planning and California Probate Reporter, and will be discussed in greater detail in the forthcoming February issue and at the Estate Planning and Administration: 26th Annual Recent Developments program to be presented at five locations around the state January 21 through January 28, available soon as On Demand.

 Tax elections and reporting requirements for estates of decedents dying in 2010 and 2011 are discussed in the March 2011 update of California Trust Administration, chaps 12–14. Planning implications of the Act will be discussed in the April 2011 update of California Estate Planning.

© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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