The Time to Gift is Now
As we approach the end of 2010, the window for maximizing wealth transfers may be closing
It seemed unthinkable - would congress let 2009 pass without addressing the scheduled lapse of the estate tax? Well, they did, granting 2010 decedents and their families the gold lining of a tax free estate. In the dusk of 2010, we now face the scheduled sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). Absent fourth quarter congressional action, gift and estate tax provisions are set to return to pre-2001 levels. It looks like baby new year might well be born with a full set of teeth. In keeping with the theme of old things becoming new again (like egregious gift and estate tax rates), we repeat last year's call from the rooftops: Gift Now!
As we are approach the end of 2010, the window for maximizing wealth transfers is arguably closing from multiple perspectives. First, the valuations of many businesses and assets are down due to the plight of the economy. History suggests that even the worst economic shocks will not keep us down forever. Second, higher and reinstated taxes, in tandem with potential new prohibitions against certain valuation treatments, will not be conducive to efficient wealth transfer.
If you believe that Congress will extend prevailing tax provisions, thereby keeping the gift tax rate at an historical low of 35%, then no urgency is required. If, however, you believe that Congress will allow EGTRRA its scheduled sunset, in which case the highest marginal rate will to return to its previous level of 55% on January 1, 2011, then NOW is the time to gift. The present economic and political climate provides individuals an opportunity to gift at a favorable rate, at a time when value is depressed, providing the ability to gift more for less.
Although low investment asset values are far from ideal, you can mitigate the pain by taking advantage of the opportunity transfer wealth at tax rates unlikely to been seen again for some time, if ever. Assuming an ownership interest with a fair market value of $5.0 million in the fall of 2010, a top gift tax rate of 35% and a joint unified credit of $2.0 million, a married couple would pay gift tax of $1,050,000 on the transfer of the interest.