Every once in a while, the federal government gets it right. Cost of Living Adjustments impacting tax rates for 2012 were recently released and most of the adjustments are favorable (see The Wall Street Journal, October 22, 2011 article A Tasty New Cola for 2012).
In particular, the estate-tax exclusion per person is increased to $5.12 million starting January 1, 2012, up from $5 million in 2011. The same goes for lifetime gifts. That is, an individual can make up to $5.12 million in lifetime gifts before the gift tax kicks in. Annual exclusions gifts remain at $13,000.
However, the light at the end of this tunnel may actually be a freight train coming our way. As of January 1, 2013, the estate and gift tax law returns to what it was in 2001 meaning that the estate tax-exclusion and lifetime gift exclusion both revert to $1 million. People with estates over $1 million need to keep this in mind and consider making lifetime gifts now.