In 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, which increased the gift tax exemption per individual donor from $1 million to $5 million for gifts made in 2011 and 2012, and a combined exemption of $10 million for married couples who split gifts. The gift tax exemption is currently scheduled to return to $1 million per individual as of Jan. 1, 2013. Recently, however, rumors have circulated that the Joint Select Committee on Deficit Reduction (the "Super Committee") may suggest lowering the gift tax exemption to $1 million as early as Nov. 23, 2011.
The source of this rumor is unconfirmed and it is impossible to predict with certainty how Congress will act. However, the intent to reduce the exemption at some point in the near future is clear. Accordingly, if financial circumstances permit and one is so inclined, this is an opportune time to make gifts of cash or other assets, either outright or in trust. To reduce the risk of losing one's remaining gift tax exemption, such gifts should be made no later than December 31, 2011 or, if feasible, November 22, 2011. The current generation-skipping transfer ("GST") tax exemption permits assets transferred in trust to be exempt from transfer tax for an indefinite period of time. This period may also be reduced by future legislation.
To maximize the value of a gift, it is advisable to transfer assets with a high potential to appreciate. Gifts may be made outright (which can be convenient) or in trusts, which may offer indefinite duration and concurrent indefinite exemption from transfer tax through use of the current GST exemption. Accordingly, transfers to a long term GST-exempt trust may be advisable, so as to take advantage of the current high gift and GST tax exemption amounts, as well as the indefinite potential duration of the GST exemption.