Possible Elimination of Increased Gift Tax Exclusion – What’s a Taxpayer to Do?

Jean McDevitt, Tax Principal
Updated November 28, 2011

The Tax Relief Act of 2010 made substantial changes to the gift, estate, and generation-skipping transfer tax systems. In particular, the 2010 Act increased the amount each individual can give during lifetime without incurring gift tax from $1 million to $5 million. The 2010 Act made the increased amount available throughout 2011 and 2012. The gift tax exclusion is scheduled to revert to $1 million as of January 1, 2013.

There is some speculation from Capitol Hill that the exclusion amount will revert to the level of $1 million sooner than expected. These rumors are fueled in part by a report issued by the Office of Management and Budget in September 2011 suggesting that the Obama administration strongly favors decreasing the federal gift and estate tax exclusions to pre-2010 levels: a $1 million gift tax exclusion and a $3.5 million estate exclusion. Moreover, the House Ways and Means Committee Democratic staff propose that decreases in gift and estate tax exclusion amounts should begin January 1, 2012 rather than January 1, 2013.

Some observers predicted that the Joint Select Committee on Deficit Reduction (“Super Committee”), created by the Budget Control Act of 2011, would incorporate a reduction of the gift tax exclusion in their formal recommendations to Congress, which were due November 23, 2011. Such a proposal might have reduced the gift tax exclusion by January 1, 2012 or as early as November 23, 2011. The Super Committee disbanded last week, however, without putting forth a proposal.

It is impossible to predict the likelihood or timing of congressional action in this area. However, for those who have decided to use their full exclusion but have been delaying for no specific reason, now may be the opportune time to take action. Please contact us if you are interested in discussing the many planning techniques available to make the most of the current gift tax exclusion rules.

If you have any questions regarding how these potential changes impact you, do not hesitate to give us a call at 800-244-7444.

Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.