Chapter 39

Gift and Estate Tax Planning Basics

Gift planning can be an important part of estate planning. This chapter provides an overview of the federal gift tax and estate tax. Developing an estate plan for your assets requires professional assistance, but the basic guidelines in this chapter can help you begin to estimate your potential estate and start thinking about property transfers that may reduce or avoid the estate tax.

Relatively small gifts can completely avoid gift tax (39.2) because of the annual gift tax exclusion, which for 2012 is $13,000 per donee. Gifts to a spouse and certain gifts to pay educational or medical expenses also are not subject to the gift tax.

Gift tax (39.4) generally does not have to be paid even on very substantial taxable gifts because the tax is offset by a tax credit that for 2012 effectively exempts up to $5,120,000 of taxable gifts from the tax.

Similarly, an exemption of $5,120,000 applies to the estates of those dying in 2012, so only very large estates are required to file an estate tax return. Those using the marital deduction and other deductions may not owe any tax, regardless of size. Estates of married individuals dying in 2012 can make a portability election that allows the surviving spouse’s estate to use any portion of the exemption amount not used by the other spouse’s estate.

When this book went to press, the fate of the gift tax and estate tax rules for years after 2012 was uncertain. The rules in effect for 2011 and 2012 were scheduled to sunset at the end of 2012, and without new legislation from Congress, less favorable exemptions and tax rates would apply in 2013 (39.9). It is considered extremely likely that Congress will act to prevent this from happening; see the e-Supplement at jklasser.com for a legislation update.

39.1 Gifts of Appreciated Property

39.2 Gift Tax Basics

39.3 Filing a Gift Tax Return

39.4 Gift Tax Credit

39.5 Custodial Accounts for Minors

39.6 Trusts in Family Planning

39.7 What is the Estate Tax?

39.8 Take Inventory and Estimate the Value of Your Potential Estate

39.9 Estate Tax for 2012

39.10 Planning for a Potential Estate Tax