STRATEGIES TO TAKE ADVANTAGE OF 2012 ESTATE PLANNING OPPORTUNITIES
The window of opportunity to make large gifts in a tax-efficient manner is scheduled to close at the end of this year. Perhaps you are already considering making significant gifts this year or are being advised by your friends, family members or advisers to make these gifts before it is "too late" to do so come 2013. The discussion below summarizes why 2012 may provide a special opportunity to make large gifts and planning options that take into account some related issues.
The 2012 opportunity
The current federal estate and gift tax exemption and the generation-skipping transfer ("GST") tax exemption for each individual is $5,120,000 (resulting in up to $10,240,000 of exemption for married couples). Absent congressional action, on January 1, 2013, the estate and gift tax exemptions are scheduled to revert to $1,000,000 and the GST exemption is scheduled to be about $1,400,000. In addition, in 2013 the current top transfer tax rates of 35 percent would increase to 55 percent. Of course, there are other possible legislative outcomes. The bottom line is that if the gift, estate and GST exemptions in future years are, in fact, less than the current $5,120,000, making large gifts before the current law sunsets at the end of the year may provide significant estate tax savings later.
What if you are not sure you want to give away so much of your wealth?
You will want to take many factors into consideration in deciding how much you can afford to give away and, just as important, would be comfortable giving away. Below are several strategies that may increase your level of comfort in making large gifts in 2012.
What if your disposable assets are not the "ideal" type to use to make gifts?
There is no single type of asset that is the best to use in making gifts in all contexts. Gifts of cash are easy to make, are easy to value and have no built-in appreciation. But what if your disposable assets consist largely of low-basis stock? Or if your assets are illiquid, as may be the case if a significant portion of your net worth consists of real estate, works of art or a family business? In such a case, you may wish to consider one of the following strategies.
What if you are afraid of having "too much" end up in the hands of your children?
For any number of reasons, you may feel inheriting more than a certain amount of property could be detrimental to your children and their own families, and you may have qualms about making gifts of the full 2012 gift tax exemption amount of $5,120,000 (or $10,240,000 for married couples). While you need to decide what will be right for your family, there are several ways to address this concern using a trust.
Please let us know if you would like to discuss making gifts before the end of the year.
President Obama's budget plan for fiscal year 2013, released in February of this year, proposes a number of changes to the estate, gift and generation-skipping transfer ("GST") tax laws. Although many of the changes have been proposed in the past without being enacted, these proposals are likely to be among the items under consideration as Congress contemplates the looming increase in federal transfer taxes next year. The following summarizes the key proposals in the budget plan:
These proposals have not yet been introduced as legislation and would not take effect until next year, so no immediate action is necessary. However, if you have not updated your estate planning documents in the past few years, this may be an appropriate time for a more comprehensive review of your estate plan to ensure that it still meets your estate planning needs and objectives.
On November 16, Alexis Gettier will be participating in a GenSpring Family Office panel called, "Avoid Art Ache: Planning & Communication, Considerations For Collections."
Carl Merino co-authored an article, "Tax Planning for Foreign Couples Buying U.S. Homes: Ownership Through Foreign and Domestic Trusts," for Bloomberg BNA’s Daily Tax Report.
On November 9, Darren Wallace will be speaking on a panel at Private Asset Management's Breakfast Briefing at the Lambs Club in New York City.
Carl Merino co-authored an article, "Tax Planning for Foreign Couples Buying U.S. Homes: Ownership Through Foreign Corporations and Partnerships," for Bloomberg BNA’s Daily Tax Report.
On November 3, Warren Whitaker gave a presentation about international estate planning for domestic estate practitioners at an Institute held by the Florida Fellows Institute of the American College of Trust and Estate Counsel.
Stephen Ziobrowski was quoted in an article, "How Bermudians can be exposed to US taxes," in The Royal Gazette. The article is a recap of an International Tax and Planning Seminar at an AFL Investment sponsored event held in May 2016, in which Ziobrowski participated.
Darren Wallace and Ed Krzanowski were quoted in an article, "Valuation discounts: what could the IRS’ new proposal mean for families?" in Private Asset Management Magazine. In the article, Wallace and Krzanowski discuss the recently issued proposed regulations under Internal Revenue Code Section 2704 that, if finalized, would curtail or eliminate valuation discounts for gift and estate tax purposes
Ed Krzanowski was quoted in an article, "IRS Estate-Transfer Proposal Meets Rare Repeal Bill," in Law360.
Angela Titus McEwan was mentioned in an article, "Executive Moves: Who hired whom this week," in NJBIZ. Titus McEwan recently joined Day Pitney as a partner in the trusts and estates practice in the Parsippany office.
Leiha Macauley was quoted in an article, "As Women Gain Earning Power, A New Focus on Finances," in Banker & Tradesman. The article is about how saving for retirement is a salient issue for women because they tend to outlive their spouses, make less money over the course of their lives, are more likely to act as caregivers for elderly parents and are also likely to inherit more money.