As we have frequently mentioned on this blog, the current state of the federal estate tax and gift tax exemption is precarious. Through 2012, the lifetime combined exemption amount (for gift tax and estate tax) is set at $5 million, which is affording many people the opportunity to pass on more of their wealth. If no action is taken by Congress, that amount will revert back to $1 million in 2013. It is possible that Congress will change the numbers to something completely different though.
In the last few weeks, there have been rumors circulating on the internet that the estate tax exemption will be going from $5 million to $1 million as a result of action by a “super committee.” According to those rumors, the estate tax exemption change would be effective immediately. But many estate-tax specialists say the rumors are untrue, or at least highly unlikely. Still, those playing it safe are considering whether now may not be a wise time to make gifts, just to be on the safe side.
Some possible strategies you might want to consider in light of the rumors:
Making an outright gift of an asset or assets which can be quickly transferred. One example would be a house which doesn’t have a mortgage. To get an idea of how large the taxable gift may be, you could have a local real-estate agent give you a comparative market analysis.
Transfer and equity interest in a closely held family partnership, limited liability company or S corporation
Forgiving intrafamily loans in order to take advantage of low interest rates. This will not require further transfers and new accounts, and so would be a quick gift to make.
While it is unlikely that there will be any immediate change to the estate and gift tax law, it never hurts to be prepared. Taking advantage of current exemption amounts may be something you want to eventually take advantage of anyway, before 2013 brings more changes.
Source: Wall Street Journal, “Is It Time to Panic About the Gift Tax Yet?,” Kelly Greene, November 16, 2011.