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2010 can be a great time to gift
Katz Baskies handles complex merger
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March, 2010

Now that the President has signed the health care legislation, perhaps Congress will turn its attention to the estate and gift tax. No one knows whether there will be legislation this year, and if there is, whether it will be retroactive to January 1. Such uncertainty often creates paralysis in planning, but there are still many reasons to consider your planning at this time.   Gifting is one of those planning techniques that should be beneficial regardless of whether there is a retroactive tax bill.  Gifting opportunities are covered in more detail in the article below.


Also, please click here to visit our new website which details many of the services we provide to clients. Our knowledge in the areas of taxation, corporate law and wealth transfer planning can often come together to maximize opportunities for clients. A recent transaction is highlighted below.

2010 can be a great time to gift
living trust document imageReduced Rates make gifting beneficial 

2010 is a very complex year in which to do any estate planning. At the present time, there is no estate tax, although there is some talk in Congress about imposing the tax retroactively. If nothing changes, the "old" law comes back into effect in 2011, with estate and gift tax exemptions set at $1 million and rates scheduled to rise to 55%! Now might be the perfect time to consider making gifts, and the rate is only 35%.


Assuming the rates are the same, gift taxes are ALWAYS less expensive than the estate tax (except for someone dying when there is no estate tax). A simple example iillustrates this. Assume that the estate and gift tax are the same 50%. The heirs of a client dying with $10 million will "net" $5 million. But if the client gifted $5 million, the gift tax would be $2.5 million (50% of the amount gifted). This tax savings is achieved because the estate tax is "tax inclusive" (it is imposed on all the assets included in the estate - even those used to pay the estate tax), while the gift tax is "tax exclusive" (it is only imposed on the assets actually gifted - not on the tax paid on the gift).  The gift tax produces such a significant benefit compared to the estate tax, that the Internal Revenue Code includes a special provision to discourage last minute gifting.  If someone makes a taxable gift and pays gift tax within 3 years of death, the gift tax paid (not the assets gifted) comes back into the estate for estate tax calculation purposes. 


Many people hesitate to make large taxable gifts, because no one likes to "prepay" a tax, and the future tax policy can be so uncertain. But with gift tax rates now only 35%, it might be the perfect time to consider large, taxable gifts. Most people believe that rates will never be lower, and with the federal budget being so substantial, it is likely that rates will be higher in the future.  A caveat: if there is a retroactive gift and estate tax reform, it is possible the gift tax rate will be increased; however, it appears the longer Congress takes to address tax reform the less likely it may be to make it retroactive. Moreover, as noted, even when the gift and estate tax rates are the same, the gift tax takes less of a "bite" than the estate tax.


There are many other benefits of gifting early. Any future appreciation is out of the estate of the gifting person, so there are additional estate tax savings. If the gift is made to a "grantor trust," then the donor can continue to pay the income taxes on the gifted assets - leading to faster appreciation and further reduction in the estate of the donor.


As with any planning technique, there are complexities that should be considered. But for affluent clients, now may be the perfect time to gift.    
Katz Baskies handles complex merger
Corporate and Tax Transaction
handshakeKatz Baskies recently represented a seller of a call center business in a complex transaction that involved a "forward subsidiary merger" of an S corporation having numerous shareholders. This transaction highlights the multi-disciplinary skills that we bring to bear for clients. To read more about this transaction, Read More 
In our January update letter to clients (click here), we raised a number of issues related to the estate tax uncertainty. While we don't have any greater direction from Congress now than we did then, we continue to field questions from clients as to how the present law affects them. And as illustrated above, there are still great planning opportunities in the midst of this uncertainty. If you have any questions about these or other matters, please do not hesitate to contact us.

Thomas O. Katz and Jeffrey A. Baskies
Katz Baskies LLC
2255 Glades Road, Suite 240W
Boca Raton, Florida 33431