I receive plenty of inquiries on my opinion on how to plan with the expiration of the $5,000,000 Federal Exemption on December 31, 2012. My advice to most clients is that they should be planning to avoid the Maryland Estate tax which starts at a rate of 16% beyond a $1,000,000. For married couples with estates valued at less than $2,000,000 they should be covered no matter whether Congress acts or not. If Congress does act, there is a good possibility that the $5,000,000 gift tax exemption will not revert to $1,000,000 even if the estate tax exemption is approved at $3,500,000 to $5,000,000. For clients with large estates it makes sense to establish irrevocable trusts and make large gifts to those trusts. The gift uses the $5,000,000 gift tax exemption and Federal Estate exemption now in existence. Maryland does not have a gift tax so that money is removed from your Maryland Estate. The only risk is that Congress passes “clawback” legislation that retro-actively reverses the gift. Most experts feel that “clawback” is unlikely.
Gifts more than $13,000 per year to one person require the submission of an IRS Form 709 to report the gift. There is no gift tax due as long as you have not used up your $5,000,000 exemption. Failure to file the return means the gift will not be removed from your estate. The preparation of a gift tax return is best done by an experienced accountant. You will need an appraisal or clear valuation of the property given away.
One gift that the IRS is looking at is the addition of another joint owner of a house. The IRS is able to review computerized land records and see where people have added a son or daughter as a joint owner. The addition of another owner is considered a gift and requires the filing of a gift tax return. The new owner acquires the present owner’s basis in the property. There are other options to transfer your property to avoid probate or to qualify for governmental assistance. You should speak to an attorney who is familiar with Estate Planning to protect your home which is often your largest and most important asset.