Friday, October 8, 2010

Wealthy Lock In Low Gift Levy as Time Runs Out on 0% Estate Tax - Bloomberg


As we get closer to year-end, and no resolution on taxes seems near, taxpayers are being forced to make gifting and other estate planning decisions based on what seems to be the most likely scenario (in my opinion): we go back to 2001 tax rates.

For individuals, this means that the estate tax (which is currently 0%) goes back to 55% at levels above $1 million. In addition, gift tax rates also go up to 55%, from the 35% level this year. For the ultra-wealthy, this may mean that gifting this year may make the most sense, as this article from Bloomberg notes:

Estates are exempt from all taxes for 2010, and the rate shoots up to 55 percent next year unless lawmakers act in a post-election session. That means the best tax-reduction strategy, short of dying in 2010, may be to transfer assets to family members this year and lock in a historically low gift-tax rate of 35 percent.

The article goes on:

“This is the lowest rate that the gift tax has ever been at; it’s only going to get higher,” {said one estate attorney}.

Gift taxes have long been matched with estate taxes to prevent the wealthiest from ducking the Internal Revenue Service after death. Americans can give away a total of $13,000 this year without any tax consequence, up to a $1 million lifetime maximum. When the allowance is spent, gifts are taxed at the same rate as estates. The exception: the 0 percent estate-tax rate prevailing in 2010, which is accompanied by a 35 percent gift tax, equal to the top marginal rate on ordinary income.


Wealthy Lock In Low Gift Levy as Time Runs Out on 0% Estate Tax - Bloomberg