American families that have yet to take advantage of the 5.1 million-dollar gift tax exemption are running out of time. At midnight on December 31, 2012, the $5.1 million exemption disappears and will be replaced by a $1 million exemption. This means that beginning in the new year, any gifts given that exceed the $1 million limit will be taxed at 50%.
The gift tax exemption is not a concern for a lot of families, but for those to whom it applies it can save a considerable amount of money. The exemption applies to gifts given during a person’s lifetime. For example, parents can choose to give individual children up to $13,000 in gifts per year without the value of those gifts being taxed.
The $5 million exemption has existed since 2011, though at the time it was only allowed to continue until 2013. Unless Congress acts to renew the exemption, it will automatically revert to the $1 million level in 2013. The likelihood of Congress extending this exemption is widely seen as unlikely given that it is an election year.
If you haven’t tried to take advantage of the exemption yet, you need to act quickly. Creating a gift plan that will suit your individual needs sometimes take several weeks, or even several months. Appraisals, business valuations, and trust documents must often be created in order to ensure the gift tax exemption is applied properly in your situation. Talk to your estate planning lawyer soon if you want to take advantage of the exemption before it ends.