Despite talk at the national level of taxing the richest 1 percent of Americans more aggressively, current federal gift-tax and estate-tax laws are favorable to high-net-worth individuals, Spokane-area estate planning professionals say.

At the beginning of this year, Congress put a two-year provision in place that puts the maximum gift-tax exemption at a historic high. For the same two-year period, the estate-tax exemption also is higher than usual.

Kevin Sell, an accountant and estate planner who co-owns Heiskell MacGillivray & Associates PS, in downtown Spokane, says the change has sparked serious conversations with his high-net-worth clients.

"I've seen more action on this than anything else in a decade," he says.

This year and next, Sell says, the maximum amount an individual can gift to others tax free is $5 million. Also for the two-year period, the maximum an estate can bequeath tax free after an individual dies is at the same level: $5 million. Those maximums apply to individuals, he says, which means a couple could give $10 million tax free.

After 2012, the maximum exemption for both gift tax and estate tax becomes $1 million per person, unless Congress acts on the matter between now and then.

The federal gift tax is charged on amounts a person gives throughout a lifetime that is above the maximum annual gift exemption. In addition to lifetime gifting levels, an individual also is allowed to give up to $13,000 a year per recipient—there's no limit on the number of people who can receive those annual gifts—without having to note it on a tax return and without it counting toward the lifetime gifting total.

The federal estate tax is charged on an individual's estate upon death, if the value of estate is above the exempted level. Generally speaking, the amount of money gifted during a lifetime counts against the estate tax exemption. Consequently, if a person gives $4 million then dies this year, his estate-tax exemption would only be $1 million.

In addition to cash, assets that are subject to gift and estate taxes are closely held businesses, real estate, and investment portfolios, among others.

Of the two large exemptions, Sell says, the gift tax is the most significant change because, generally speaking, a person can control when they give and how much they give. With an estate tax, it typically is unknown when a person will die and what the estate-tax environment will be at that time.

Sell says that while many people don't have enough assets to make gift tax and estate tax a relevant issue in their financial planning, for those who do, the increased exemption levels are significant.

"It's a huge opportunity and a huge trend in the industry that almost every high-net-worth estate planner is working with their clients on," he says.

Paul Viren, president of Viren & Associates Inc., in downtown Spokane, says one wrinkle in the current gift-tax exemption is that the exemption is now "portable" within a married couple. Viren says that means that one person's unused lifetime gift-tax exemption can be transferred to a surviving spouse upon death.

For example, Viren says, if a husband uses $4 million of his lifetime gift-tax exemption this year then dies, the remaining $1 million in available gift-tax exemption is transferred to his wife along with his share of their assets.

In a community-property state like Washington, where each spouse owns 50 percent off all assets, a surviving spouse previously would receive the couple's assets but would have only her original gift-tax exemption. Viren says that in the past, this dynamic has compelled high-net-worth couples to set up trusts into which they could transfer illiquid assets, such as investment real estate businesses, and potentially avoid estate taxes upon death.

"For those who have closely held businesses or illiquid assets, this has been a boon for doing those transfers," he says.

Brent Stanyer, a principal at the downtown Spokane law firm of Douglas, Eden, Phillips, DeRuyter & Stanyer PS who counsels clients on estate planning, says the gift-tax exemption is especially relevant for high-net-worth individuals who live in Washington because of its potential effects on the state estate tax. In Washington state, he says, any estate valued at more than $2 million is subject to estate tax, in addition to any federal tax that might be charged. Consequently, gifting while there is a $5 million exemption could help some people's heirs avoid the state estate tax in the future.

"Are there opportunities to transfer wealth out of their personal estates that might not be here in 14 months?" Stanyer says. "The answer may be yes. We don't know what the economic environment or the political environment will be."

However, he says, transferring assets typically isn't as simple as cutting a check. In cases in which a family-owned business is involved, for example, a succession plan can take a considerable amount of time to put together. Typically, he says, such plans play out over the course of a number of years. When such assets are involved, the question of whether to transfer now or to hold off takes close examination, he says.

"We don't want to make stupid transfers, but we don't want to lose an opportunity," Stanyer says.

The basic estate planning questions still must be addressed, says Don Morgan, branch manager of Spokane Valley-based Independent Wealth Connections LLC, which is an independently-owned branch of the Wells Fargo Financial Network. The approach he recommends starts with asking questions that are philosophical in nature: Who am I, and what do I want my legacy to be? Then move toward more practical questions: What am I trying to achieve, and to whom do I want my assets to go?

"Until the subject comes up, most people aren't aware of what Congress did," Morgan says. "Once they recognize what has happened, they start to have conversations about whether to act."

He adds, "The answer depends on the circumstances. There is no, one right answer."

The increase in the gift-tax exemption is something estate planners don't recall seeing before. Since the early 1990s, Sell says, the exemption has hovered at the $1 million mark.

The estate-tax exemption, however, has changed a number of times during the past decade, Sell says. Through the 1990s, it was unified with the gift-tax exemption at $1 million. During the tax cuts and tax-law changes that occurred during President George W. Bush's era, the estate-tax exemption ratcheted up, first to $1.5 million, then to $2 million, then to $2.5 million. In 2010, there was no estate tax, so the estate of anybody who died that year didn't get taxed, regardless of estate size.

The current tax rates for both estate and gift taxes start at 17 percent and step up to 35 percent, Sell says. Twenty-plus years ago, the tax rate was substantially higher, at 55 percent.

Estate planners are speculating those rates will increase again after 2012.

"There's a general acceptance that the tax rate is going to be higher," Sell says. "The fear is it could go back to 55 percent. We're hoping it falls somewhere between the two (35 percent and 55 percent)."