January 1st is approaching fast. As the date looms ahead, so do major changes in federal estate and gift tax exemptions.

The significant increases to federal estate and gift tax exemptions was originally put in motion in 2001 by President Bush and extended to 2011 and 2012 by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (also known as the Bush Tax cut extension package). This taxpayer-friendly extension is set to expire on December 31, 2012.

If no changes occur before January 1, 2013, the Bush tax cuts expire and the federal estate and tax exemption law will revert back to exemption amounts existing prior to the Bush Tax cut extension package. If this happens, the federal estate tax exemption drops to $1 million (versus 5.12 million under current rules) and there will be a maximum federal estate and gift tax rate of 55 percent (versus 35 percent under the current rules). In addition, the portable exemption privilege for surviving spouses will no longer exist.

Although no decisions have been made at this time, the results of the recent election will have a large impact on the rules that will apply in 2013. If your client wishes to take advantage of the current tax laws by gifting or transferring business interest, contact us.