Estate Tax Planning & Gift Tax Planning: Trying to Hit a Moving Target – The Current Estate and Gift Tax Planning Landscape

I wasn’t a quarterback, but my assumption is that making a throw to a stationary receiver isn’t terribly difficult.  Making a throw to a receiver sprinting across the field while being chased around by 300 pound monsters is another story.  Hitting a moving target, whether it’s throwing a pass to a running receiver or trying to meet a budget that is continually changing, is a difficult feat.  This is no different than the ever-changing estate and gift tax landscape that business owners and their advisors must navigate.

As of January 1, 2011, the Federal estate, gift and generation-skipping transfer tax exemptions were all set at $5 million with a maximum tax rate of 35%.  This arrangement is scheduled to last through the end of 2012, at which point the Federal estate tax laws are slated to revert to where they were approximately a decade ago.  This means a reduction in the estate tax exemption to approximately $1.5 million and a maximum tax rate of 55%.  In addition, with the country’s budget crisis, proposals to “fix” the budget may include reductions in estate tax exemptions and the restriction of certain estate planning techniques (such as limiting the ability to apply valuation discounts to ownership interests in family limited partnerships). 

How can business owners and their advisors make long-term succession plans in this sort of ever-changing and unknown environment?  One approach is to try to “hit the moving target,” or project how lawmakers may change the estate and gift tax exemptions going forward and plan accordingly.  In our current situation, however, this may be the ideal time to “hit the checkdown receiver” who is stationary and wide open – in other words, taking advantage of the $5 million gift tax exemption (which is extremely generous compared to historical levels) while it is still around. 

Have questions about your estate &/or gift tax plan? Contact us at (855) MARCUM1.