If you are considering making gifts or transferring wealth to your children, grandchildren or other family members, 2012 is the time to act because it presents an unprecedented opportunity for families to transfer wealth while minimizing transfer tax implications. The gift, estate and generationskipping transfer tax lifetime exclusions are at $5,120,000 and the top gift tax rate is only 35% on transfers exceeding that amount. In addition, asset values are relatively depressed, interest rates are at historic lows, and discounting is more favorable now than it may be in the future. All of these factors may enable you to make a greater gift now at a reduced transfer tax cost than might be the case in the future.

These favorable provisions are set to expire at the end of 2012. Unless Congress takes further action, as of January 1, 2013, the gift, estate and generation-skipping transfer tax lifetime exclusions will be reduced to $1,000,000 and the top tax rate will increase to 55% on transfers exceeding that amount. President Obama has proposed his own revisions to the transfer tax laws, which would include a lifetime gift tax exemption of $1,000,000, an estate and generation-skipping transfer tax exemption of $3,500,000, and a maximum transfer tax rate of 45%. In addition, President Obama’s proposal would reduce or eliminate the effectiveness of various favored estate planning techniques by requiring a minimum 10-year term for GRATs, a 90-year maximum term for GST dynasty trusts, and eliminating intentionally defective grantor trusts (i.e., trusts that are taxed to the settlor for income tax purposes but not included in the settlor’s estate for estate tax purposes).

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