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05-31-2012 Heads Up! We're Entering The 4th Quarter Of An Extraordinary Two-Year Opportunity

The game clock is running down on a two-year window of estate and gift tax planning opportunities that may never happen again. Unless Congress acts, on January 1, 2013, federal estate and gift tax exemptions and rates will revert to their 2001 levels (adjusted for inflation) - i.e. $1 exemption per person and a 55% tax rate. Even if Congress acts, some of the planning tools that we now commonly use may be limited or eliminated.

By now, you should have heard that the exemption for federal taxable estates and gifts is $5.12 Million per person, the highest it's ever been (this is in addition to the annual gift tax exclusion of $13,000). Also, the current estate and gift tax rate is 35%, the lowest it's ever been. Furthermore, over the past few years there have been numerous proposals to limit future valuation discounts for closely held businesses, require 10-year minimum terms for Grantor Retained Annuity Trusts ("GRATs"), deny estate exclusion for newly created Intentionally Defective Grantor Trusts ("IDGTs"), and eliminate "dynasty trusts."

What this means is, now is the time to act. But time is running out as some planning opportunities require early action and you may not be able to wait until the end of the year.

The Estate Planning Team at Fraser Stryker PC LLO has many ideas that we want to share with our clients such as:

  • Making lifetime gifts to use some or all of the increased gift tax exclusion amount;
  • Splitting gifts and assets between spouses;
  • Utilization of existing lack of marketability and minority interest discounts with respect to stock in family owned businesses;
  • Creating short-term GRATs;
  • Selling assets to IDGTs;
  • Creating and funding Irrevocable Life Insurance Trusts;
  • Making taxable gifts to take advantage of the low gift tax rate and to shift future appreciation out of your estate;
  • Disclaiming an interest in some or all of a marital trust (this could be a trust that has been created for a spouse during life or after the death of a spouse) to exclude the disclaimed assets from the beneficiary spouse's estate.

However, to take advantage of many of these strategies you must act now. For instance, when making gifts of stock in a closely held company, an appraisal is typically necessary. Qualified appraisers are going to be in high demand during the last half of 2012. If you don't begin that process now, it may be too late. Also, if a spouse is disclaiming part but not all of a marital trust, court approval may be necessary which will certainly take time.

As we said, the game clock is running out. We look forward to discussing these opportunities with you, and helping you promptly implement these strategies. Attorneys in our Estate Planning Practice Group advise individuals and estate and trust fiduciaries on a wide variety of estate planning and administration matters. For more information or assistance, please contact Robert Freeman, Dan Guinan, or Adam Grieser.