By Michael A. Hackard

                We have surely experienced years that were great and others not so great. The Dixie Chicks put lyrics to the notion that each year has its own character in their hit “Favorite Year.” Babe Ruth’s “better year” explanation as to why he made more money than the President has become iconic. Queen Elizabeth’s “annus horribilis” description of her families’ 1992 troubles is still remembered some 20 years later.

2012 is the last year that a $5 million estate and gift tax exclusion[1] (twice that for married couples) can be utilized for $5 million tax-free wealth transfers. In this sense it might well come to be a “Favorite Year” for estate planners and their clients. In comparison, 2013 allowing for only a $1 million gift tax exemption ($2 million for married couples), is a substantially “lesser year” to make large tax-free gifts. Moreover, the 2012 top estate/gift tax rate of 35% on amounts over $5,000,000 will be increased to 55% on amounts over $1 million for 2013.

The 2012 $5 million gift-tax threshold is surely a strong incentive for outright gifting. It is a threshold that will soon be gone.  For those who desire to make sizable wealth transfers in the next twelve months, a few days at the end of this calendar year and the beginning of 2013 can spell the difference in millions of dollars of gift taxes.

President Obama’s 2013 Revenue Proposal contains its own “annus horribilis” elements. Included among the proposed elements is a provision that would eliminate valuation discounts for gift and estate tax purposes (essentially not recognizing lack of control and lack of marketability discounts). There are a number of unfavorable elements in the Revenue Proposal – all making 2012 wealth transfers a “Favorite Year.”

Many law firms and accounting firms are encouraging their clients to contact them by June 1, 2012 to allow sufficient time to engage in immediate planning under the current favorable estate and gift laws. We agree with those firms. Good planning can certainly help make 2012 a better year for the preservation of family wealth.

© Copyright Michael A. Hackard, 2012. All rights reserved.  Hackard Law, 10630 Mather Boulevard, Mather, California 95655


[1] Indexed to inflation;  $5,120,000 in 2012.

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