Life Insurance and Estate Gifting
by Peter Katt
The current estate and gift tax situation presents a significant planning opportunity for making gifts prior to December 2012.
The estate and gift exemption credit for 2012 is $5.12 million per taxpayer, up from $5 million last year. The current law also provides for “portability.” Portability allows a surviving spouse to preserve a deceased spouse’s unused estate tax exemption by filing a federal estate tax return. Couples both dying prior to the end of 2012 can pass $10.24 million to heirs free of transfer taxes, with a tax rate of 35% on the excess. Under the integrated estate and gift tax system, individuals can gift up to $5.12 million over their lifetime without the payment of gift taxes. This means a couple can gift $10.24 million over their lifetime without tax.
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But before popping the champagne corks, you need to understand that the current law expires on December 31, 2012, and if the exemption is lowered, you won’t be able to transfer this amount tax free. What you do get is the earnings on the gift, so making as large a gift as possible now is usually the best strategy.
Let me explain several important estate and tax issues related to life insurance by using some examples.
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