This article appears in the March 2012 edition of the Goering Center newsletter:
Business owners and high-net-worth individuals who wish to pass along assets to their children were given a gift last year, but it comes with an expiration date. The lifetime gift tax exemption was temporarily raised from $1 million to $5 million ($10 million for married couples), which creates valuable possibilities for transitioning wealth to the next generation.
If a business owner is beginning to shift responsibility to his or her children, this would be an ideal time to give a large portion of the business to the kids – particularly if the assets are likely to grow in value. The business owner could give up to $5 million in assets without having to pay a gift tax today or an estate tax later, and any appreciation in those assets would accumulate tax-free in a trust.
The lifetime gift tax exemption had been $1 million, meaning an individual could give up to $1 million – beyond the annual limit of $13,000 – without having to pay gift tax. Any gift beyond $1 million was taxed at 35 percent. The exemption was raised to $5 million for gifts made in 2011 and 2012. Unless lawmakers pass an extension, the exemption will revert to $1 million in 2013, and the tax rate on gifts beyond $1 million will rise to 55 percent.
Thus, 2012 represents a short but valuable window of opportunity to pass along significant wealth to the next generation.
Click here to read the remainder of the article and others in the March 2012 newsletter.