Estate planning is especially complex in 2012. Due to a series of tax law changes—most recently under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Relief Act”)—wealthy families can benefit from generous estate tax exemptions, a lower estate tax rate, reunification of the estate and gift tax systems, portability of estate tax exemptions, a return to “step-up in basis” rules, and other changes. But it may be all for naught.

Why is that? The latest set of estate and gift tax provisions are scheduled to “sunset” after 2012. Barring any new legislation, the estate and gift tax law generally will revert to the way it was prior to the passage of a 2001 law that phased in today’s favorable rules.

Of course, Congress still could act late this year, or even impose retroactive provisions next year, but there are no guarantees, and without further action, the family of someone who dies in 2013 will face much stiffer estate planning challenges than if the death had occurred the previous year.

How well do you understand the current state of affairs? Here’s a brief quiz to test your knowledge.

1. The maximum estate tax exemption for someone who dies in 2012 is:

1. $1 million.
2. $3.5 million.
3. $5 million.
4. $5.12 million.

2. The maximum estate tax rate in 2012 is:

1. 25%.
2. 35%.
3. 45%.
4. 55%.

3. The portability provision for estates allows for the:

1. Transfer of an unused exemption between spouses.
2. Transfer of an unused exemption to a child.
3. Carryover of the exemption to the following year.
4. Extension of the exemption to gift tax.

4. The generation-skipping tax generally applies to any:

1. Transfer from a grandparent to a grandchild.
2. Transfer from an estate to a trust.
3. Transfer from a parent to a child.
4. Transfer to a younger individual.

5. The lifetime gift exemption in 2012 is:

1. The same as the estate tax exemption.
2. Half of the estate tax exemption.
3. Equal to the gift tax exclusion.
4. Repealed.

6. Barring new legislation, which of the following will occur in 2013?

1. The estate tax will be repealed.
2. The top estate tax rate will be 55%.
3. The estate tax exemption will be $500,000.
4. The generation-skipping tax will expire.

7. Barring new legislation, which of the following will NOT occur in 2013?

1. The portability provision will be repealed.
2. The generation-skipping tax exemption will be reduced.
3. The lifetime gift tax exemption will be reduced.
4. The carryover basis rules will be reinstated.

Answers: 1-d; 2-b; 3-a; 4-a; 5-a; 6-b; 7-d

estate planning taxes