Reduction in Gift Tax Exclusion May Have a November 23 Effective Date

Originally Published on forbes.com on November 9th,2011

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Subsequent inquiry has made me a little more skeptical about these reports.  Here is a follow-up.

Rumours are circulating that the Super Committee may be planning to cut Gift Tax Exemptions from $5,000,000 to $1,000,000.  The really scary part of the rumors is that the change may have an effective date of November 23, 2011.  How real are the rumours ? Well consider the sources.  This is from the Florida Trusts and Estates Blog of Dean Mead

The Joint Select Committee on Deficit Reduction (the “Super Committee”), a 12 member bipartisan Congressional committee, is scheduled to announce its proposals on November 23rd for reducing the national deficit by at least $1.5 trillion over the next 10 years. The Super Committee proposals may include changes to the current estate, gift and generation-skipping transfer tax laws. Of immediate importance to you or your clients, we have heard rumors that the Super Committee may propose a reduction in the Federal gift tax exemption from the current $5 million exemption to $1 million. It is possible that the Super Committee may recommend these changes to become effective as early as November 23, 2011.

My friend Charley Egerton is a partner in Dean Mead, a major Orlando firm.  He recently completed a term as the American Bar Association’s Section of Taxation.  That is significant credibility.  I tried to reach Matthew Ahearn, the author of the post, but everybody there is in a meeting.  Here is another source for the rumour.

What to Do ?

Making a major wealth transfer gift in a time frame of not much more than a week is fraught with peril.  Select some assets.  Value them.  Contribute them to a family limited partnership.  Operate the partnership for a while.  Value the partnership interests. Make gifts of the partnership interest.  This is not going to happen in a week.  What you can do though is make a gift of cash or marketable securities to an intentionally defective grantor trust.  Then you can select assets that have better wealth transfer attributes and sell them to the trust in a more orderly manner.