Near the end of December 2010, while the rest of us were probably finishing our last-minute holiday shopping, Congress was busy at work amending the tax code. It contains some nice changes for estate and gift taxes.

In 2010, there were no estate taxes at all. But that relief was set to expire on December 31st, when the estate tax limit would have reverted to $1 million and anything above that limit would have been taxed at 55%.

In the package passed on December 17, 2010, Congress raised the estate tax exemption to $5 million per individual, or $10 million per married couple. The exemption level for generation-skipping transfer is also $5 million, so each person can leave $5 million to a grandchild (or anyone more than 2 generations younger) without incurring any tax.

There is more good news. For those who exceed the $5 million limit, the tax rate was reduced to 35% for every dollar above the limit. Under the old law, the tax rate was 55% for every dollar over the $1 million limit.

Make Plans Now Before It's Too Late!

Congress has given Americans a golden opportunity to make gifts and move much more wealth out of their estates – but they have to do so very soon. According to tax historian Joseph Thorndike, the new estate and gift rates are the most generous since 1931. However, these rates are set to expire at the end of 2012. If no new changes are passed before December 31, 2012, then the estate tax exception goes back to only $1 million on January 1, 2013.

There are many issues to consider before making sizable gifts: loss of control over the assets, the cost basis that is passed on to the recipients, or the possibility that Congress might “claw back” large gifts in future legislation – to name just a few. For these reasons, it's a good idea to review your estate plan and gifting options while Congress is being generous.

Questions? Contact us for a complimentary estate planning consultation.