HNWElder Law, Estate Planning

By: Fredrick P. Niemann a NJ Estate Planning Attorney
Should you exploit the new $5 million lifetime gift exemption?

In 2010, Congress voted to give us all a $5 million dollar lifetime gift estate tax individual exemption.

In addition, between married couples, upon the death of one spouse, the executor of the estate can elect to transfer any unused portion of the $5 million individual exemption to the surviving spouse.

At the moment, these tax rates and generous exemptions apply through 2012.  In 2013, things may change.  So estate planning and tax planning professionals are alerting their clients of this window of opportunity.

The big news:  The $5 million lifetime gift tax exemption.  For married couples, the lifetime gift tax exemption is actually $10 million dollars.  In 2010, the lifetime gift tax exemption was only at $1 million dollars.

So considering all this, the big question is:  Should you give away as much as you can to your children before 2013 with the intent of reducing estate taxes down the road?

After all, lifetime gifts reduce your taxable estate.  Additionally, if you give your children appreciated securities, the long-term capital gains of those securities will be taxed when sale at their capital gains rates rather than yours.  If your children’s income puts them in the 10 percent or 15 percent tax bracket, their capital gains tax rate is zero percent through 2012.

Let’s illustrate how this works.  Dad doesn’t gift up to $5 million during his lifetime – he only ends up gifting $3 million.  Well, Mon can subsequently gift up to $7 million after he passes thanks to the portability rules, as there would still be $7 million to go toward the $10 million lifetime gift tax exemption for a married couple.  When the first spouse passes away, the executor of his or her estate must file an estate tax return even if no estate tax is owed.  That estate tax return formally notifies the IRS that you are transferring the unused or partially used gift tax exemption.

Incidentally, this estate tax return is due nine months after the death of said spouse, with a six month extension permissible.

Do families need bypass trusts anymore?  We can’t say goodbye to them, because 15 states still levy their own estate taxes with exemptions commonly at $1 million or under like in New Jersey.  Moreover, who knows if portability will be permitted five or ten years from now?

The potential for savings could be great.  When you look at this remarkably generous lifetime gift tax exemption allowance in light of certain estate planning techniques that might leverage it – such as the grantor-retained annuity trust and the family limited partnership – the potential is intriguing.

For more information, please contact Fredrick P. Niemann, Esq. at (888) 800-7442 or email him at

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