To Gift, Or Not To Gift
The $1 million lifetime gift-tax exemption remains intact for 2010 but the tax on gifts has fallen. It's now 35%, compared with 45% last year. But don't get too excited. Oshins says, "I would not suggest anyone pay a gift tax today under the belief that there won't be a retroactive gift tax that is higher."
His advice now is to pursue gifting strategies that can be curtailed later. "Wealthy individuals should get their valuation discounts done this year because Congress might restrict them to some extent in 2011," Oshins says.
Now is also the time for GRATs, or grantor-retained annuity trusts, he adds. Individuals who create and place property in these trusts today must outlive the term of years set in the GRAT in order for the property to fully escape estate taxation. There's talk in Congress of upping the minimum term to ten years.
Perhaps the greatest opportunities lie in transfers of wealth to grandchildren or later descendants-that is, generation-skipping transfers. "It could also be the area with the most risk," says Brier, the Massachusetts attorney/CPA.
There is no generation-skipping transfer tax this year. "So in theory," Brier says, "you could make unlimited gifts that skip a generation-no estate tax or gift tax payable by your children on the assets-for the price of a 35% gift tax after you've used your $1 million lifetime gift-tax exemption." But that's for the high-stakes gamblers, he says, because the gift tax could be increased to 45% retroactively while the generation-skipping transfer tax, which was also 45% in 2009, could also be imposed retroactively and in any event is set to reappear in 2011. "A lifetime generation-skipping transfer attracts both gift tax and GST tax," Brier says.
Technically, the tax isn't repealed this year. "The code provisions are still there; there's just no tax being imposed," Brier says. "The question is, if you make a gift to a generation-skipping trust this year, can you apply a GST exemption so that if the tax exists in the future, the applicable trust assets will be exempt from it?" That isn't clear, he concludes. "Generation-skipping is the most bollixed area of the law."