2013 Estate And Gift Tax Exclusion Rollback Being Advanced?

In December 2010, Congress quickly passed some changes to the Estate and Gift Tax

law that increased the lifetime gifting exclusion from $1,000,000 to $5,000,000. As written, this increase is scheduled to sunset at midnight, December 31, 2012. Some of our clients have taken advantage of this opportunity, because, generally speaking, if you have given away property, it is not there to be taxed in your estate. Others have taken a "wait and see" approach, in other words, they are going to wait and see what Congress does or doesn't do, next year, with respect to extending the period of the $5,000,000 exclusion beyond 2012, before they decide about gifting.

However, while we would like to think that we can at least plan around current laws, take note that the Super Committee has begun to meet to try to find ways to reduce the deficit. Each side (Democrats and Republicans has submitted a summary). The Democratic Super Committee* members Summary states that "revenue could be raised against a current-law baseline by reverting to 2009 levels one year early (in 2012)." This sentence pertains to current law, which provides for a $5 million exemption amount both for death and gift purposes. Reading between the lines, this means that the $5,000,000 exemption could be reduced to $1,000,000 without much warning. The Democratic Super Committee Summary also proposes some changes that will seriously reduce the ability to "discount" gifts, and negatively impact the benefits of strategy call "Rolling GRATs".

Although we do not know what revenue raising provisions will become law, we do know that, presumably for the next few months, taxpayers have the opportunity to use two year GRATs, discounting, and most importantly, a $5 million exemption for gift purposes. For those affluent taxpayers fortunate enough to benefit from these exemption amounts, "waiting and seeing" may mean losing out. For those who believe that taxes will be increasing, acting now may be the better course, particularly when values are down.

Although gifted property generally receives a carryover basis (which is a negative), there are strategies to effectively avoid this down-side and take advantage of the low interest rate environment.

* The Republican and Democratic leaders in Congress have selected the "Super Committee" members to represent their parties and our nation in formulating deficit reduction recommendations. These twelve members are tasked with saving $1.2 trillion to $1.5 trillion. If they fail to do so by Thanksgiving, automatic spending cuts go into effect.

by: Gregory C. Picken

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