Estate tax planning has never been an art of certainty, but the last two years have brought about a new era of uncertainty. Due to congressional indecisiveness, estate tax planners have been unable to give clear direction to their clients. In light of all the uncertainty, some significant new opportunities are now available for those willing to engage in the process of estate planning.

The compromise on gift, estate and generation-skipping tax laws passed by Congress on Dec. 17, 2010, provides federal tax largesse – an unprecedented opportunity for farmers and ranchers to make tax-free transfers to lessen the impact of estate taxes when they die.

Nevertheless, time is short. By the end of 2012, this tax-free lifetime wealth transfer opportunity may diminish.

The year 2002 is a good starting point for background. (As a matter of fact, if current estate tax laws go according to the plan Congress has currently laid out, we will be once again bound by the same estate tax rules that we lived by in 2002.)

In 2002, an individual had the ability to transfer up to $1,000,000 ($2,000,000 for a married couple) in assets to the next generation without incurring any estate taxes. For estates greater than $1,000,000, the excess value over $1,000,000 was taxed at a maximum rate of 50 percent.


As we progressed from 2002 to 2009, the estate tax exemption was increased over time until it reached a maximum exemption amount of $3,500,000. The amount that could be gifted during one’s lifetime remained at $1,000,000 from 2002 to 2010.

As of Jan. 1, 2010, the estate tax was set to be repealed completely. Although the repeal was never realistically expected to occur, congressional inaction led to the full repeal of the estate tax at the close of 2009. If no changes to the law were made prior to the end of 2010, the estate tax was queued to be revived in 2011 and beyond at the same levels as 2002.

Major changes
As 2010 came to a close, Congress worked to agree on a solution to avoid the sunset of the estate tax repeal and reversion back to the 2002 estate tax levels. Although no long-term plan was enacted, a short-term agreement was reached and signed into law.

Fortunately, for the first time in history, individuals now have the opportunity to gift up to $5,000,000 during their lives or transfer $5,000,000 tax-free upon their death (or any combination of the two).

The estate tax was also reunited with the gift tax, meaning that regardless of whether an individual wanted to transfer $5,000,000 ($10,000,000 for a married couple) during his or her lifetime or at his or her death, it was now possible to do so without incurring any estate or gift taxes.

This tool could be extremely useful for farm and ranching families who have real estate as their major asset.

Portability of the estate tax exemption is also a new development in the estate tax planning world. Previously, if one’s estate tax exemption was not used at the death of an individual, it was no longer available. Now, if one’s spouse passes away without having used any or all of their $5,000,000 exemption, it is available to be used by the deceased’s surviving spouse.

Thus, in effect, if one’s spouse passes away without using any of their $5,000,000 exemption, the surviving spouse could have up to $10,000,000 of exemption available to use for his or her estate.

It should be noted that upon remarrying, the surviving spouse no longer has the option of using his or her previously deceased spouse’s exemption, but now only has his or her new spouse’s exemption available.

Your opportunity
With the major changes in estate tax laws discussed above, there are now some significant opportunities you should consider while these new levels of gifting and estate tax exemptions are available.

Any high net worth individual (in this case anyone with a net worth of $1,000,000 or greater) should assess the value of his real and personal property (including cash and investments). This will arm you with the information necessary to determine if gifting would be an effective technique to lower the value of your estate while the current exemption level is available.

In addition to moving the current value of the gift out of your estate, any future growth (in terms of value) of these transferred assets would also be moved to the next generation. The time is now to assess whether your family can benefit from the $5,000,000 gift tax exemption.

The biggest mistake you can make between now and the sunset of the current estate tax laws in December of 2012 would be to do nothing. You should conduct a detailed review of your overall estate and consider how your estate may be affected under the current regime and what the impact of 2002 level exemptions and tax rates may have on your assets, if you don’t take advantage of current opportunities.

The investment of a few hours of your time and that of a qualified CPA and/or attorney could ultimately result in lessened dollars due to the government by your family. Take aim at your family’s bottom line. PD

Author Rob Gunther, CPA has extensive tax and consulting experience in agribusiness and family-run businesses with specific focus on the cattle industry. He is partner with Frost, PLLC in Little Rock, Arkansas. Contact him at or 501-975-0112 .

Rob Gunther
Legal Partner
Frost PLLC