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Oliver Wendell Holmes, Sr.


The Congressional ‘Joint Select Committee’ May Return The Gift Tax Exemption to 2009 ($1 million) Levels by Year End

The Congressional “Joint Select Committee” May Return
The Gift Tax Exemption to 2009 ($1 million) Levels by Year End
As you are all well aware, there is a temporary lifetime gift tax exemption of $5 million set to expire on December 31, 2012. Thus, individuals can currently gift $5 million dollars in assets (in cash or in kind) without the imposition of any gift tax. This amount is $10 million for a married couple. These gifts are in addition to the $13,000 annual gift tax exclusion.

As a result of this generous gift tax exemption, individuals who can afford to have been aggressively giving away the available exemption in cash, marketable securities, commercial real estate, residences, closely held business interests, family partnerships, LLCs, etc. In addition, they have been using estate planning leveraging techniques such as (1) GRATs and (2) sales to Intentionally Defective Grantor Trusts (IDGTs) to transfer multiples of the $10 million exemption without the imposition of any gift tax (these have been discussed in prior email blasts). It is important to note that while many states such as New York and New Jersey have very onerous estate taxes, these states do not have a gift tax. As a result, the importance of gifting becomes significantly amplified.

Recently, a 12 member congressional committee (the “Joint Select Committee”) was formed to reduce the deficit. The recommendations of the Joint Select Committee will be sent to Congress no later than November 23, 2011. An “up or down” vote must take place by December 23, 2011. If either the Joint Select Committee fails to make the required recommendations or Congress fails to accept those recommendations, then the automatic spending reductions mandated by the Budget Control Act of 2011 will be triggered (including huge cuts to the defense budget).

There have been members of the Joint Select Committee that have indicated a willingness to consider changes to certain gift and estate planning techniques that benefit wealthy individuals. The changes being considered include a reversion as of January 1, 2012 to the gift and estate tax exemptions that existed in 2009. In 2009, the lifetime gift tax exemption was only $1 million (as opposed to the current $5 million gift tax exemption) and the top gift and estate tax bracket was 45% (as opposed to the current 35% rate). In addition, some members are considering changes to available estate planning techniques such as GRATs and discounts for intra-family transfers. Given the severity of our budget crisis, it is impossible to predict what will happen. Without agreement of the committee, Congress and the President, there will be unprecedented cuts in our defense budget. Since very few members of Congress would be happy with the scheduled cuts in defense, some compromise will have to be reached.

If you have been delaying your estate planning on the assumption you have until the end of 2012 to take advantage of these tremendous opportunities, DON’T. Now is the time to act. Let us answer any questions you may have.

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