There is a unified estate/gift tax on the federal level in the United States, and you must be aware of the current exclusion so that you can determine whether or not you are subject to the tax. Those who are exposed have something to be very concerned about however because the maximum rate of the tax is 40% this year.
Throughout 2012 this exclusion, that encompasses taxable gifts that you give during your life as well as your estate, was $5.12 million. However, if you were in possession of assets that exceeded $1 million last year you were potentially exposed to the estate tax in 2013.
This is because of the fact that the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was set to expire at the end of 2012. When it did in fact sunset the estate tax exclusion was scheduled to plummet to just $1 million.
Because of the above a logical thought would be to give gifts in 2012 while the expanded estate/gift tax exclusion was still in place.
Many people utilized this logic according to an article that is up on the Forbes website. You must file IRS Form 709 to account for taxable or potentially taxable gifts that you give during a tax year. According to the Forbes article the current volume of these forms is more than double the volume that the Internal Revenue Service handled last year.
It is worthwhile to point out the fact that in the end the estate tax exclusion did not go down to $1 million due to the enactment of the American Taxpayer Relief Act of 2012. We have a $5.25 million exclusion in 2013, so you’re safe from the tax if your assets do not exceed this figure.