Business Succession + Legacy Planning

You may have heard the rumors reported by the Wall Street Journal and circulated among many tax and financial advisors about the possibility of an impending reduction of the $5 million unified estate, gift, and generation-skipping transfer tax exemption. The most provocative of these rumors is that the reduction of the exemption may take effect as early as November 23, 2011—the date on which the so-called congressional “Super-Committee” is slated to issue its recommendations regarding deficit reduction as required by the Budget Control Act of 2011. In the absence of congressional action, the current exemption amount of $5 million will expire at midnight on December 31, 2012.

We understand that some advisors are recommending that their clients accelerate any contemplated gifts to a date prior to November 23, 2011, in order to ensure qualification for the current exemption amounts. In truth, most analysts think it unlikely that any change to the exemption amount will be effective prior to December 31, 2011—and many analysts think that it will be even longer before any changes are implemented. Moreover, no one knows for sure what the ultimate changes might look like. It is difficult to predict what the respective exemption amounts will be for gifting, estate transfers, and generation skipping transfers; whether any change to the exemption will be accompanied by an increase in the relevant tax rates; or whether Congress may also impose limits upon valuation discounts for minority interests.

Most will not be in a position to make any changes to their current gift and estate plan prior to November 23. Still, there remains some (albeit a small) possibility that the rumors turn out to be true—and you should at least be aware of that risk. What we do know is that that this is the first time during any of our careers that the current gift tax exemption applicable to your estate may be greater than the estate tax exemption that will apply to it in the future. In order to ensure that you will be able to take advantage of this asymmetry, anyone with the wherewithal to do so should consider the positives and negatives of making large gifts under the current exemption regime.