The estate tax exemption that allows an individual to give $5.12 million tax-free to immediate family is in danger of ending in eight weeks. The exemption was $1 million in 2001, but increased to $5 million in 2011 and $5.12 million in 2012 (an inflation adjustment). On January 1, 2013, the exemption will automatically revert to the $1 million mark.
While I believe there's a good chance Congress will preserve some exemption, we can't be sure the level will remain at $5 million. Lawmakers could drop it to $3 million... even $2 million.
Of equal concern is the loss of the "generation skip transfer" – the tax break that covers the transfer of assets to your grandchildren. It's almost certain this loophole will be eliminated or at least severely reduced from the $5.12 million mark.
So if your net worth is $1 million or more – and you are concerned about paying taxes on money you transfer to your family members – you should carefully consider this exemption before the end of the year.