Currently Americans can give $5,120,000 to anyone without paying gift taxes, less earlier taxable gifts. That amount drops to $1,000,000 on January 1, 2013, unless the law changes. If you want to make large gifts in a tax efficient manner it may be “now or never.”

While no one (including probably Congress) knows how the estate and gift tax laws will change after 2012, most estates professionals expect the exemption from the gift tax to drop from the current high level. Also expected is an estate tax with potentially higher rates and lower exemptions, though the debate on the ultimate estate and gift tax is far from settled. (The current administration supports a $3,500,000 estate tax exemption equivalent and $1,000,000 for gift taxes.) So what should you do?

First, if you do not anticipate making large gifts, say over $1,000,000 (or $2,000,000 for a couple)–either due to a need for assets or an anticipation that the estate tax will not be significant for you or a belief that gifts are not appropriate for your family–then you don’t need to read any further. Also if you can satisfy your gifting desires using the $13,000 annual exclusion or direct payment of medical and tuition then the exemption level may not matter. But if you are considering at any time making large gifts— to help family or to reduce estate taxes—now is the time to act.

The simplest way to use the gift tax exemption is to make a direct gift to a recipient—either cash, securities or other property. If outright giving doesn’t seem to be the right approach, because the recipient is too young or might not use properly the large gift, you could gift to a trust customized to what you really want for the beneficiary and the gift.

Many clients have reservations about whether they can afford to make such a large transfer. For these clients consideration should be given to making a gift in trust for their spouse.

This type of trust is being referred to as a “spousal access trust.” The donor spouse cannot be a beneficiary of such a trust, and no property owned by the beneficiary spouse can be contributed to the trust. The terms of the trust can be custom designed, and could include not only the donee spouse as a beneficiary (typically the preferred beneficiary), but also the children, and even more remote descendants. This allows the donor spouse to part with the full exclusionary amount, but there will be access to that amount to provide for the donee spouse for life.

There are also ways to leverage the gift tax exemption—i.e., gift $5,120,000 but remove even greater amounts of assets from your estate. Careful consideration of those other techniques could save significant taxes for your family.

As one example you could give assets to a Grantor Retained Annuity Trust (GRAT) and retain a defined income interest from those assets for a term—shifting the excess growth and appreciation to your beneficiaries. (Certain legislative proposals limit some planning options on GRATs, but do not eliminate their usefulness under the right circumstances.) A similar gift can be done with a personal residence gifted to a Qualified Personal Residence Trust (QPRT), allowing you to live in the residence for a fixed term but having its value fixed for transfer tax purposes.

Gifts also can involve partial interests in property or family partnerships or LLCs, approaches designed to divide ownership of the property, to allow some discount on the property value. Other gifts could be a combination of a gift and a loan—particularly useful now with the low interest rates.

In addition to the high exemption, many assets are still depressed in value due to the recent economic turmoil—so gifting them might afford extra leverage.

A few caveats: Tax-wise, gifts are generally advantageous as they shift assets to the donee and let the appreciation grow in the donee’s hands without further transfer taxes. Mathematically, it may even be advisable to pay gift taxes. But gifted assets do take a carryover basis, so there needs to be some consideration of that issue. Also assets can drop in value, rendering the gift less valuable. These caveats are part of a carefully developed gifting plan, and should be dealt with as needed. Another caveat is something estates professionals call “clawback”—i.e., if the exemption drops and you have used it, can the IRS claw the usage back? Possibly, but most estates professionals doubt that will happen.

The mechanics of gifting can vary based on individual needs and desires. But the one almost certainty is that failing to gift the full exemption amount in 2012 may waste a unique opportunity in the tax laws.

It may well be “now or never.”