FORTUNE -- Much was made of last year's temporary repeal of the estate tax. Thanks to legislation passed in 2001, the tax on money left to heirs fell from a top rate of 45% in 2009 to 0% in 2010. That one-year free pass has been withdrawn: The tax was reinstated on Dec. 17 in a deal between Republicans and the White House. For the next two years the tax will return with a much higher exemption level ($5 million for individuals, $10 million for couples) than before and a lower rate (35%) than just about anyone expected.
But while the debate about the controversial "death tax" has settled down for the moment, the real boost to the wealthy under the new rules has gone largely unnoticed. In the same bill, the gift-tax exemption was raised from $1 million per person to $5 million, and from $2 million for a couple to $10 million -- same as the estate tax. Anything above that amount will also be taxed at the historically low rate of 35%.
Identical exemption levels and tax rates apply to a separate tax levied when someone passes money on to grandchildren -- the so-called generation-skipping transfer tax. "For the first time since 1932 you can give away $5 million without incurring a gift tax," says Jonathan Bergman, vice president of Palisades Hudson Financial Group in Scarsdale, N.Y.
Indeed, the amount of money you can now transfer tax-free to your heirs if you do so while you are alive -- as opposed to bequeathing it to them at death -- is staggering. Daniel L. Kesten, an attorney at Davis & Gilbert in New York City, says that a couple in their fifties could put $10 million into a type of trust that would allow them to pay the taxes on the gains during their lifetime and, by doing so, move more money out of their estate. He calculated a scenario for a client who lived for 30 years after setting up what's known as an "intentionally defective grantor trust" and paid the taxes the whole time: If the assets grew at 5%, the heir would receive more than $43 million free of estate taxes.
Bergman has clients who have basically done that. The couple had already put $2 million into a trust for their only son, using up the previous gift-tax exemption. In January they put another $8 million in trust, and they plan to pay the taxes over the next two or three decades of their lives. (This gift exemption is separate from the annual gift exclusion. Under current rates, anyone can still give $13,000 a year to as many people as he wants without having to pay a tax.)
Leiha Macauley, an attorney at Day Pitney in Boston, added that giving money while you're living also reduces the amount that will be subject to additional taxes at the state level. Currently 20 states have estate taxes -- with rates up to 16% -- whereas only a handful have separate gift taxes.
The big risk today is for people who want to give their heirs gifts over the $10 million exemption level in order to take advantage of the 35% gift-tax rate before it potentially rises again. If the Republicans gain control of the presidency and Congress in 2012 and fully repeal the estate tax, that group might end up having paid gift taxes for no reason. But with the rules so friendly already, why push your luck?
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