In 2012, the federal estate and gift tax exemption, which is the amount a person can give in life or pass at death before having to pay estate and gift tax, was $5,120,000 per individual. As the infamous “fiscal cliff” approached, the federal exemption was set to drop back to $1,000,000 per individual on January 1, 2013 if Congress did not pass new tax legislation. At that time, most commentators believed that Congress would compromise by lowering the exemption to $3,500,000, which was part of the Obama Administration’s tax plan.
Based on these assumptions, many clients entered into gifting plans in 2012, the primary goal of which was to use as much of the $5,120,000 exemption, or combined exemption of $10,240,000 for married couples, as possible before it was lost. Many married couples who could not give $10,240,00, transferred assets to a single spouse to allow that spouse to give