The tax law signed by President Obama in December 2010 will expire on December 31, 2012. The top 2012 Unified Tax Credit, also referred to as the Unified Tax Exemption, until then will be $5.12 million per person. Also included in this law was a reduction of the top estate tax rate to 35%.
The Unified Tax Credit combines an estate, gift and GST (Generation Skipping Tax) taxes into one exemption. This feature continues, but not the maximum tax credit, nor the more favorable tax rate. There are other provisions that are set to expire. One provision is the portability of any unused portion of the exemption to the surviving spouse.
There are two actions one should take regarding this likely change to Unified Tax Credit and with the unknowns of what will happen to the Unified Tax Credit:
- Consider taking advantage of the $5.2 million Unified Tax Credit and transfer gifts in 2012.
- Carefully review your estate planning if you have used formula based allocations to beneficiaries. Unexpected results might occur in 2012 or in later years, based on changes in the Unified Tax Credit and the portability feature. One example of this issue is that a surviving spouse might receive nothing at all and everything would remain in the trust.
Unless changed, the Unified Tax Credit will be reduced to $1 million and the top tax rate will revert to the previous 55 percent.