As the end of the year nears, investors remain jittery over the “fiscal cliff.” This is the $607 billion expiration of a combination of tax cuts and the beginning of a large amount of automatic spending cuts that is set to occur on January 1 unless Congress and the White House reach an agreement. Many analysts point to nervousness over the fiscal cliff as the reason why the stock market dropped last week by the most in one week since June.

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization and Jobs Creation Act of 2010, known as the “2010 Act.”  The 2010 Act increased and extended the federal estate and GST tax exemptions for two years, 2011 and 2012, and for the first time increased the federal gift tax exemption to $5,000,000 per person.  The gift estate tax exemptions were indexed for inflation so that, in 2012, the exemption is $5,120,000 per person.