Now we will have to wait and see what the U.S. Congress does with the federal estate tax. The exemption amount for the federal estate tax is $5,120,000 in 2012, but is reduced to $1,000,000 in 2013 and beyond, unless legislation is passed to change the law. The tax rate of 35% in 2012 will increase to 55% in 2013 and beyond, unless legislation is passed to change the law.

I have given up on making predictions on this topic except to say that I do not believe that there will be a complete elmination of the federal estate tax. There was such talk a few years back before the economic meltdown in 2008. But with the large national debt, the expenses of two simultaneous wars and a sluggish economy, complete repeal does not appear realistic no matter who wins the White House in November. 

Even if Congress changes the law to provide an increased exemption and/or lower tax rate, there is nothing to say that Congress won't change it again in the future to a less favorable exemption and/or tax rate.

Bottom line: for estates in excess of $1,000,000, estate tax planning may still be prudent in light of the uncertain times we live in.

There is still a federal gift tax. However, because of the federal lifetime exemption ($5,120,000 in 2012, and $1,000,000 in 2013 and thereafter, unless Congress acts to change the law), most gifts will not result in a federal gift tax.

There are other issues when making gifts that warrant caution and careful planning. 

1. Capital Gains Tax: Loss of Step Up in Basis. Property inherited at death receives a step up in basis. However, for lifetime gifts, the donee receives the basis of the donor. For example, if your father gifts you land that he purchased for $10,000, and the property is worth $100,000 at the time of the gift to you, then you receive his basis of $10,000. When you sell the same land later for $100,000, you will incur a taxable gain of $90,000. Had you inherited the property af your father's death, then your basis would be the value of the property at his death. If the property was worth $100,000 at his death, and you sold it for $100,000, the taxable gain would be 0. 
2. Can't Undo the Gift. A completed gift generally cannot be undone. The donee has control of the gift, and the property is subject to the donee's liabilities and creditors. Gifts can be made in trust for the intended beneficiary of the property to protect the property from the beneficiary's creditors and to provide parameters of beneficiary control. However, outright gifts to individual donees have no similar protection.
3. Medicaid Ineligibility.  Gifts may cause a Medicaid long term care Ineligilbity period for the donor. Medicaid has strict gifting rules that generally apply to gifts made within five years of the Medicaid application. The federal annual exemption for gifts does not apply to Medicaid. Under Medicaid, there is no annual exemption amount.

As you can see, even though the Tennessee gift tax has been repealed, there remain complex legal and tax issues when making gifts. The above information is general in nature and is not intended to be legal advice for particular facts or circumstances. If you intend to make a gift of real property or any other signficant gift, your should consult an attorney knowlegable of this subject matter.