"Put not your trust in money, but put your money in trust."
Oliver Wendell Holmes, Sr.


$5 Million Gift Tax Exemption Is Only Good Thru The End Of 2012 LAST CHANCE! New Laws Create Enormous Estate Planning Opportunities For The Wealthy

The “Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010” (the “Act”) significantly changed federal tax laws regarding estate taxes, gift taxes and generation-skipping transfer taxes. However, many of these benefits are scheduled to expire at the end of this year. Therefore, if you want to take advantage of the numerous estate planning opportunities, you should consider the following.

    1. PLANNING FOR 2012.
    2. Until the end of 2012, the gift tax exemption is reunified with the estate tax exemption at $5,120,000. This is a dramatic increase from the $1,000,000 exemption in 2010. The maximum gift tax rate in excess of the exemption is 35%.

PLANNING SUGGESTION: This is a great opportunity to make additional gifts if you have already used your $1,000,000 exemption. In addition, since there is no New York or New Jersey gift tax, a true tax-free transfer can be made. It may be a use it or lose it scenario.

For wealthy clients who have estates significantly in excess of $10,000,000, using the $5,120,000 gift and GST exemptions now can create huge opportunities when selling assets such as commercial real estate or a closely held business to an Intentionally Defective Grantor Trust (“IDGT”).


    1. For individuals whose estates are less than $10,000,000 it is critical to review your Will provisions (see Section IV). Many Wills have been drafted to leave the exemption amount directly to children.

A provision such as this could result in the surviving spouse being disinherited.

    1. Please review your plan to make sure your estate planning documents and asset structure match your objectives.

    3. Also until the end of 2012 the GST tax exemption is $5,120,000, with a maximum tax rate of 35% for transfers in excess of the exemption.

PLANNING SUGGESTION: Careful use of the $5,120,000 GST exemption in 2012 can result in passing significant assets to grandchildren and more remote generations without any federal transfer taxes.

    2. Significantly, the Act does not contain any provisions requiring a minimum term for grantor retained annuity trusts (“GRATs”). Therefore, short term GRATs continue to be a valuable estate planning tool. In addition, there are no provisions eliminating or curtailing valuation discounts for gift and estate tax purposes, so these continue to be an important component of estate plans.

    4. For 2011 and 2012 decedents, a surviving spouse can use the unused portion of the estate tax exemption of his or her deceased spouse. This is referred to as the “portability” provision. The deceased spouse’s executor must file an estate tax return (even if not otherwise required to do so) to take advantage of the portability rules. These provision may make a “credit shelter trust” obsolete. However, this is not necessarily the case. The answer depends on the individual state’s estate tax. If a “state credit shelter” trust is not created on the death of the first spouse, there may be unnecessary State estate tax payable on the death of the survivor. The use of a “credit shelter trust” will also preserve the generation-skipping transfer tax (“GST tax”) exemption of the first spouse to die, since the GST exemption is not portable.

PLANNING SUGGESTION: Meet with your estate planning attorney to determine whether your existing Will needs changing as a result of the new law and if a segregated State Credit Shelter Trust is appropriate.SUMMARY:

The high gift and GST exemptions present significant estate planning opportunities, especially in the current economic environment where asset values and interest rates are very low. As noted, these changes apply only through December 31, 2012, and absent further legislation the law will revert to $1 million. Once again uncertainty reigns and it is recommended that you take advantage of these tremendous opportunities now. TO ENSURE YOUR PLANNING CAN BE TIMELY IMPLEMENTED, please contact us at your earliest convenience to review the potential impact of the current legislation on your estate plan.

Maurice R. Kassimir, Esq. 212-790-5719 mkassimir@mkpclaw.com
Cheryl B. Tager, Esq. 212-790-5753 ctager@mkpclaw.com
Marianne M. N. Jensen, Esq. 212-790-5725 mjensen@mkpclaw.com
Tonia Sherrod, Esq. 212-790-5774 tsherrod@mkpclaw.com
Ephrat S. Orgel, Esq. 212-790-5931 eorgel@mkpclaw.com

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