At the end of 2010, federal tax law changed to raise the federal estate gift and generation skipping transfer tax exemptions to $5 million per person for 2011 and 2012. (Oregon retains a $1 million exemption at death for the state estate tax; Washington has a $2 million exemption.) In addition, Congress extended the reduced income tax rates enacted in 2001, including top rates of 35% on ordinary income and 15% on capital gains and qualified dividends. These rates will be in effect until the end of 2012. At the same time, the assumed federal rates for gifts or interfamily transfers or sales is at a historic low (currently 1.4 percent for October 2011). As a result, it is an excellent time to consider making gifts or other types of transfers to family members. Although the law as it currently stands extends these tax opportunities to the end of 2012, it is possible that Congress may end these benefits sooner.
Having the increased federal gift tax exemption of $5 million means that couples can give up to $10 million of assets now without incurring gift tax (reduced by any taxable amount they previously gave to children or other individuals). Oregon has no gift tax. Together, this provides an opportunity to shift appreciation on assets that may currently have a depressed value to children or other family members at little or no gift tax cost.
There are several transfer techniques that are particularly attractive now given the low assumed federal interest rates. Strategies such as grantor retained annuity trusts (GRATs), installment sales to grantor trusts and charitable lead trusts all present great tax planning opportunities.