Last Minute Gift Tax Exemption Planning for 2012

Unless you’ve been living under a rock, the news has been dominated by discussion of the fiscal cliff coming at the end of the year. One of the elements of the fiscal cliff includes a rollback of the estate tax laws to 2001 levels. That means there will be federal estate tax due when you give beneficiaries more than $1,000,000 at a rate of 55% on every dollar over the exemption. 

Knowing that this change is coming, folks are deciding to use the expiring $5MM gift tax (and estate tax) exemption to shelter assets from estate taxes before it drops down to $1MM in January, or wherever it settles. Not accounting for appreciation of assets over time (which would make the benefit even greater), this is a potential savings of $2,200,000 in federal estate taxes for a single person and $4,400,000 in federal estate taxes for a married couple. 

What’s interesting is that, as people wait for the last minute to do planning, the competent estate planning attorneys that do this work are near, or at, capacity to get the planning done by the end of the year.

Two things are happening as a result. First, some folks are just not able to get this planning done in time. Second, people are going to anyone who says they can do this work, instead of a dedicated estate planning attorney, and risking that this planning backfires. The worst thing that can happen is that the drafting attorney makes an error as to whether the assets you put away are included in the estate or outside of the estate. Including just one wrong provision (taken from an ill-advised form) can unwind the plan and creating an estate tax bill in the millions — which wouldn’t come up until much later.

Here’s an article from the NY Times on December 14, 2012 – highlighting some other pitfalls and strategies for those people waiting for the last-minute. 

Posted by Victor Medina

Medina Law Group, LLC