The Bush tax cuts - George Bush - will expire on December 31, 2010, unless Congress acts fast - an unlikely occurence. For clients with large estates, the expression "gifting with warm hands" has never been a better option. This year, there is no estate tax or generation skipping tax and gift taxes are 35%. After January 1, all will skyrocket. Estates of $1 million and more could be taxed as high as 55%, and gifts of $1 million and more will go from 35% to 55%, and it is possible for generation skipping transfers to be taxed as high as 80%!
The Bush tax cuts were the result of a compromise reached in 2001 by George Bush and Congressional Republicans to abolish the estate tax. They could not get a complete win, but what they did get was a gradual reduction over the course of a decade, with a single year of complete repeal in 2010. However, under the budget rules, if both Houses of Congress don't re-ratify the repeal this year, in 2011 the tax rates will revert to 2001 levels.
At least one of my clients is gifting several million dollars to her children this fall, in a wise move to preserve the assets that she and her husband have worked hard to earn. Many high net worth individuals are making this same decision. Some are waiting until December to make their transfers, just in case Congress decides to get busy between Election Day and the holiday season. On the negotiating table right now are proposals from the administration and from Congress, but none are as beneficial as what is in place right now.
Thisis especially true if there is a question as to whether a prior transfer is subject to a generation skipping tax. Under the proper circumstances, corrections can be made and the transfer will be permanently exempt from the generation skipping tax.
The only alternative to gifting is to make sure to die before January 1, 2011. I personally recommend gifting. Remember Jack Benny's reply when a mugger demanded "Your money or your life!" His response, after a pause: "I'm thinking, I'm thinking."