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Written By: Thomas G. Blomberg, Jr., Esq, J. Wesley Smith, Esq, Robert A. Buchman, Esq. and Jenifer K. Leece, Esq.

Buchman Provine Brothers Smith LLP

Walnut Creek, California

This may be the final year that the "Bush Tax Cuts" remain in effect. The tax cuts, enacted in 2001 and 2003, were originally scheduled to expire at the end of 2010. On December 17, 2010, however, President Obama signed legislation that temporarily extended the Bush Tax Cuts through 2012 (the "2010 Act").

If Congress fails to extend the Bush Tax Cuts, many significant rate changes will take effect on January 1, 2013. This Alert summarizes the major estate and gift tax changes that are scheduled to take effect in 2013 and associated planning opportunities.

Estate and Gift Tax

Absent further legislation, the favorable estate, gift and generation-skipping transfer (GST) tax provisions of the 2010 Act will expire on December 31, 2012. If you have been contemplating making lifetime gifts to your children, grandchildren or heirs, we urge you to act before the end of this year to take advantage of the expiring tax provisions.

Expiring Estate Tax Provisions

For estate and gift transfers occurring in 2012, the maximum estate, gift and GST tax exemptions available to an individual donor are at a high of $5.12 million. The top tax rate applicable to transfers above the $5.12 million exemption are at a low of 35%.

For estate and gift transfers occurring in 2013, the maximum estate, gift and GST tax exemptions are scheduled to decrease from $5.12 million to $1 million. The top tax rate applicable to transfers above the $1 million exemption is scheduled to increase to 55%.

Planning Opportunities

Consider making taxable gifts, including to trusts and children or grandchildren, before December 31, 2012, to take advantage of the current high exemptions and low rates.

Start gifting process immediately to insure completion before December 31, 2012. Your gifting program may involve the creation of one or more irrevocable trusts, family limited partnerships or other entities. You need to allow sufficient lead time to put these structures in place before making your gifts. If you plan to gift assets other than cash or marketable securities, you need to factor in sufficient time to secure a qualified appraisal of the assets well before year's end in order to determine how much you can gift without paying gift tax.


You should act immediately if you wish to capture the estate planning opportunities presented above. If you would like to discuss the tax changes or planning opportunities, please contact a member of our Wealth and Succession Planning Group.

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