On October 20, the IRS announced that the exemption amount that protects taxpayers from estate and gift tax will increase in 2012 to $5,120,000. This is an increase of $120,000 from the $5 million amount in 2011. This automatic increase is due to inflation. However, the $13,000 exemption amount for annual exclusion gifts remains the same.
At first glance, this is good news. In the last 10 years, we have seen the exemption amount increase from $1 million to now over $5 million. However, the estate tax storm clouds are looming in 2013, when the exemption amount automatically falls to $1 million.
It may not be until late 2012 that Congress and the President act to address this issue, if at all, making it difficult to plan with any certainty.