Tuesday, August 9, 2011

Estate Gift Tax Rates to Change

The President's 2012 budget, released in mid-February seeks to return the Federal Gift tax exemption to $3.5 million, which was temporarily increased to $5 million, and the gift and generation skipping to $1 million, with a 45% transfer tax rate. The senate is divided. Republicans would like to remove the estate tax all together, while both would agree on $5 million exemption, however disagreeing on the tax rate (45% or 35%).

Further, it seeks to make portability permanent, meaning, a spouse can use their spouse's unused exemption permanently, whereas now it is set within specific time limits.

Also sought is a 10 year minimum and remainder value greater than zero for grantor retained annuity trusts (GRAT). GRATs allow transfer of wealth between family members at a reduced gift tax cost if the grantor survives the term. Dynasty trusts will also be limited (used in jurisdictions that do not follow the common law rule against perpetuities) with a 90 year maximum on new trusts or new monies to existing trusts.

Additionally, the new budget seeks restrictions by way of a new class of tax restrictions on valuation discounts which allow discounts in the valuation of family owned businesses.

Look out for changes nearing 2012.