You have less than 5 months to take advantage of unique planning opportunities

August 2, 2012

Now that we are more than half way through 2012, with no new legislation on the horizon and the expiration of the current estate and gift tax regime looming, it seems a good time to take a look at what unique planning opportunities are available for families this year.

While the estate, gift and generation skipping tax rates have been steadily decreasing, the exemption amounts have increased over the past ten years.  In fact, in 2012, these exemptions are tied together, allowing an individual a unique opportunity to make either lifetime gifts or gifts effective upon their death up to an exemption amount of $5,120,000.  This amount doubles if you are married and both you and your spouse choose to make gifts.  This opportunity exists for the remainder of 2012; however, the exemption amounts are currently scheduled to be reduced in 2013 to $1,000,000.  It is not known whether the current rate (35%) will continue or the scheduled expiration will occur; however, what we do know is that there are certainly opportunities for those willing to do their planning this year.

In addition, there are unique planning opportunities available to those interested in establishing trust structures such as grantor retained annuity trusts (or GRATs) due to the low 7520 or “hurdle” rates used to calculate the gift tax effect of gifts made to a GRAT.  The 7520 rate for July was only 1.2%, which means that the return needed on assets contributed to a GRAT structure need only exceed 1.2% annually to make the GRAT’s transfer of wealth to the remainder beneficiaries successful.  In addition, the Applicable Federal Rate (or AFR), which is the minimum rate required by the IRS for recognition of loans between family members is as low as 1.01% for a mid-term loan; making it an ideal time to make use of loans to transfer family wealth.

Remember, there are less than five months to take advantage of these opportunities; however, time moves quickly.  Don’t lose your opportunity; look into your family’s options today.

Commonwealth Trust Company is pleased to provide this article as a guide. Commonwealth Trust Company is not engaged in the practice of law and is not providing legal advice by the provision of these materials. Commonwealth Trust Company recommends that clients seek the opinion of their attorney regarding the specific legal and tax issues addressed in this article.