Under the Tax Relief Act of 2010, an individual has a lifetime exemption equal to $5 million for 2011 and 2012. This exemption can be used to not pay estate and gift taxes or both. In 2013, this exemption is scheduled to go back to $1 million unless there is further legislation enacted to have the exemption be different. There is a legitimate concern that it will be important to utilize this exemption over the next 2 years to avoid the potential risk that it may go down to a lesser amount in the future. There needs to be careful analysis as to whether one should gift.

A key concern is the income tax basis that the recipient will receive. If one inherits an asset, the basis is the date of death value. Alternatively, if one receives a gift, the basis is the lesser of the grantor's basis and the fair market value of the property at the time of gift. This can have a great impact on a subsequent sale of the asset and/or depreciation deductions available for a depreciable asset.