CONSIDER ACCELERATING TAXABLE GIFTS BEFORE YEAR-END
High net worth individuals may not want to wait until Christmas this year to make taxable gifts to their families. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which was enacted on December 17, 2010, increased the federal estate and gift tax exemption to $5 million ($10 million for a married couple) and reduced the top estate and gift tax rate to 35 percent from 45 percent for 2011 and 2012. However, with the ongoing efforts in Congress to reduce the deficit, and the Super Committee's (a special committee of Congress) proposal deadline looming on November 23, there has been widespread speculation regarding possible imminent changes to estate and gift tax laws.
Under the Budget Control Act of 2011, the Super Committee has until November 23, 2011, to issue a formal proposal containing at least $1.2 trillion in deficit reduction for the full Congress to consider. Congress will then have until December 23, 2011, to enact the proposal, without amendments, by pure majority vote in each chamber. If the deadline is not met, sequestration cuts totaling $1.2 trillion in deficit reduction will be triggered, slashing defense spending and Medicare benefits.
Over the past two months, most of the Super Committee's work has been conducted behind closed doors, making speculative predictions regarding its recommendations. In the President's legislative proposals, "the Administration remains opposed to the extension of these high income tax cuts past 2012 and supports the return of the estate tax exemption and rates to 2009 levels." The 2009 exemption amounts were $3.5 million for estate tax purposes and $1 million for gift tax purposes. Similar language reportedly appears in the Democratic wish list for the Super Committee's consideration.
While there is significant uncertainty regarding the final proposals of the Super Committee, it may be worthwhile to consider the impact of any potential changes in the estate and gift tax law. Those high net worth individuals who were planning on using the increased $5 million gift tax exemption before the end of 2012, should consider accelerating gifting in 2011, and possibly prior to November 23, before the enactment of any new legislation.
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