If you are concerned about the impact that the federal estate tax could have on your legacy it would be logical to consider giving gifts to your loved ones while you are still alive. Of course the powers that be are well aware of this logic so there is a gift tax in place. It is unified with the estate tax and they both carry a 35% rate as of this writing.
There is also a combined gift/estate tax exclusion. This amount is $5 million right now as a result of a provision that is contained within the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. If this measure had not been enacted the rate of the estate tax would have been 55% and the exclusion would have been $1 million in 2011.
2012 will provide a familiar scenario when it comes to the gift/estate tax. The above-mentioned tax relief act is going to sunset at the end of 2012. At that time the exclusion is scheduled to be reduced to $1 million and the rate is set to rise to 55% once again.
As a result, you may want to consider giving gifts to individuals who would otherwise be inheriting these assets during the 2012 calendar year to take advantage of this temporary $5 million gift tax exemption. This is a potentially unique opportunity and it would certainly be wise to give the matter some thought.
Of course, there is precedent with regard to a last minute change so you never know what may happen as the sunset of this tax relief act approaches. This possibility is in play as you are considering gift giving based on the notion that this is a limited window. The best way to sort it all out is to sit down and discuss the matter in detail with a good estate planning attorney.