Now is a great time to start making gifts from your estate or start planning to make those gifts before the end of the year. Provisions of The Tax Relief Act of 2010, set to expire at the end of 2012, increased the lifetime gift tax exemptions to $5.12 million for individuals and $10.24 million for married couples, while keeping the estate and gift tax rate at 35 percent. If no legislative action is taken before the end of the year, the lifetime exemption will drop to $1 million in 2013 and the tax rate will increase to 55 percent.

As a result, if you transfer $5.12 million in assets in 2012, you will pay no gift tax. If you wait and make that same transfer in 2013, the result would be a $2.266 million tax liability.

“That’s a significant increase,” says Kaz Unalan, CPA, director, tax and business advisory services at GBQ Partners LLC. “If you are considering transferring assets, do it this year before these tax provisions expire.”

Smart Business spoke with Unalan about how to take advantage of the tax cuts while there’s still time.

How does the economic environment play into estate planning?

Based on the current economic climate, many values are depressed. These lower values give you the opportunity to gift more at a lower cost. A prime example is real estate. Those values are creeping back, but they’re still much lower compared to values in 2007 and 2008.

Values of closely held businesses are no different. Because these are at historic lows, it is an ideal time to consider gifting a closely held business. In addition to low values, marketability and minority interest discounts could further enhance your gifting capacity. Currently, interest rates are also historically low and very favorable when gifting assets into a trust. Trusts are appealing gifting vehicles for retaining control of an asset while freezing its value. The interest rate is important in that the lower the interest rate the less the income interest is worth, and conversely, the more the remainder interest is worth. This is extremely beneficial for gifting strategies related to Grantor Retained Annuity Trusts and Intentionally Defective Grantor Trusts.

When gifting nonmarketable assets such as real estate or interests in a closely held business you should have a professional appraisal or business valuation performed.

How does the future tax environment affect estate and gift tax opportunities?

There’s a lot of uncertainty going into 2013, which has to do with the political environment and the current administration’s budget proposal. Currently, there are valuation provisions in place that are favorable for taxpayers as they relate to the ability to discount valuations of family-controlled entities for gifting purposes. The proposed budget would eliminate those discounts. Part of the current budget proposal also includes restrictions on the use of GRATs. Those proposed restrictions would make GRATs less favorable as an estate planning tool. You need to work with your advisers — your CPA and legal team — to make sure you stay on top of these changes. Those are the best and biggest allies when you’re trying to find out more about these laws and changes and how it impacts you and your business. Those advisers know the rules and have a good understanding of your personal situation. That’s a key component to planning.

What are some strategies to take advantage of this favorable time?

A lot of it starts with looking at your business and family situation. Many considerations are made based on how your personal beliefs and your values align with the tax and legal aspects. You need to answer some big-picture questions such as what you want to leave your heirs, how you want to ensure the financial security of your family now and when you are gone, and who is ultimately going to receive your estate.

Start looking at those big-picture questions and then boil it down to a specific vision. It can then be as simple as making an outright gift and taking advantage of the increased exemption by transferring the gift by the end of the 2012. You can also look at it from a comprehensive planning perspective. Gifting can be part of a family-owned business strategy and include other elements of planning such as the use of trusts.

What are the benefits and risks of estate and gift planning?

The benefit is preserving your estate for your heirs. By doing that now, you take advantage of a tax environment that hasn’t been this favorable for a very long time. Being more efficient in your tax planning can also significantly add value and preserve more of your estate.

By not working with the right professionals you risk missing big opportunities. Beyond the opportunities, you want to make sure you are working with professionals who understand the tax laws and the compliance elements that go along with estate and gift planning. Failing to document and execute the plan is a risk that can be avoided with the right professionals. It’s important to fully understand all of the steps that are necessary for estate and gift planning in order to reduce any kind of risk you may have.

Kaz Unalan, CPA, is director, tax and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5309 or

Insights Accounting & Consulting is brought to you by GBQ Partners LLC

Published in Columbus

Business owners need to be aware of the tax implications of recent federal legislation, including President Obama’s extension of former President Bush’s tax cuts and changes to the estate tax exemption.

“There are a lot of potential advantages on the plate, but there are also a lot of unknowns,” says Mona Sarkar, J.D. MTax, a Vice President, Client Advisor and Wealth Team Manager for FirstMerit Bank. “Some things have changed and some have stayed the same.”

Smart Business spoke with Sarkar about how to prepare for the implications.

What has changed and what has stayed the same?

On one hand, the new legislation extended tax cuts with regard to dividends, capital gains and rates on ordinary income, for another two years — through the end of 2012. On the other, the estate tax situation was modified.

Over the past  decade, the estate tax had an increasing exemption amount, which peaked in 2009 at $3.5 million, with a maximum tax rate of 45 percent. In 2010, there was no federal estate tax. Legislators then passed a $5 million exemption and a maximum estate tax rate of 35 percent for 2011 and 2012. In addition, the lifetime gift-giving exemption was capped at $1 million, while the estate tax exemption continued to increase.

Now, the new estate tax exemption and the gift tax exemption are the same. Someone can pass away with an estate of $5 million and pass federal estate tax-free to beneficiaries, or they could literally give away $5 million of assets during their lifetime and pay no gift tax. It’s an either/or for the next two years.

The real question now is will the higher estate tax exemption be made permanent or will it revert to lower previous levels? As a result, you have a two-year window of advantages capped with uncertainty.

What should businesses expect over the next two years?

There is a drumbeat of concern about taxes wiping out a lifetime’s worth of building a business. The people pushing to make the estate tax exemption permanent say it will save the American small business.

Small business owners are saying ‘If my spouse and I each have a $5 million exemption, that will ensure our business passes on to the next generation without having to be sold to pay taxes.’ I expect there will be an attempt to make it permanent prior to the national election in 2012.

What do business owners need to know about the changes in the estate tax exemption?

There are business owners with a succession plan in place, who have already given away $1 million of stock in their business, but were kept from giving any more because they would be paying out-of-pocket on gift taxes.

Now, they have the opportunity to re-examine their plan. They’re able to make larger gifts or pass the business down to the next generation, without extraneous tax penalties.

Most estate planners are educating their clients as to what’s currently possible in the given environment. Our job is to be sure the consumer is educated as to the possibilities, so they’re able to make an informed decision Not everything in life can be driven by taxes, but it’s important to be aware of the tax situation.

As we get closer to the end of 2012, push will come to shove. Depending on whether lawmakers are considering making the changes permanent or if they are facing pushback, people will either sit back or there will be a race to accomplish major gifts in the last quarter of 2012.

How should existing estate plans be handled?

People should look at the documents they have in place, just to make sure that if something were to happen between now and 2012, or if in fact the new exemptions became permanent, their estate plan still works the way it’s intended.

While the documents fit at the time they were created, the current estate tax situation could turn that plan into a mess if it isn’t managed carefully.

If you have a document that is more than five years old, we recommend talking to your attorney to find out if it still works. Many factors can impact an estate plan: premarital agreements in the case of second marriages or children from previous marriages, etc. So when there are major changes in exemption amounts, like we’ve seen this year, it’s critical to examine your plan to make sure it still works.

While you may not want to engage in any major gift-giving now, you still have to make sure that if something happened to you tomorrow,  you would still get the right result.

It’s a two-sided coin — on one hand it could impact your plan if you do nothing, and on the other hand, are there advantages you should take because of the exemption?

What other tax implications should businesses consider?

The income tax part of it simply extended the tax cuts that were already in place in terms of dividends, capital gains and ordinary income  rates overall. To the extent that those were allowed to expire, you would have higher income taxes paid on dividends and capital gains and higher overall income tax brackets for ordinary income.

In terms of real actual revenue dollars, the estate tax is not a big item in the federal budget. Income taxes, capital gains taxes, and taxes on dividends are a much bigger concrete number. While they are not as high in any given situation, there are more people paying them.

Also, for anyone inheriting from an estate or beneficiary of estate for someone who passed away in 2010, there are elections that can be made. Talk to your attorney about it.

Mona Sarkar, J.D. MTax, is a Vice President, Client Advisor and Wealth Team Manager for FirstMerit Bank. Reach her at 1-888-384-6388 or

Published in Chicago