Friday, June 3, 2011

Heckerling Speakers Address Gift Tax Changes for 2011 and 2012

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Last week's Heckerling Institute on Estate Planning in Orlando, which ended on January 14, provided a first look at the transfer tax changes made by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Many speakers, who had submitted their outlines before the legislation was signed on December 17, were forced to make last-minute changes to their presentations to reflect the provisions of the Act.

Several speakers noted that earlier advice to make taxable gifts in 2010, to take advantage of the 35% gift tax rate, is now inoperative, due to the increase in the gift tax exemption to $5.0 million in 2011 and 2012. The subtext was that clients who had been advised to pay gift tax in 2010 are now feeling foolish (or worse) for having done so, in light of the five-fold increase in the exemption. Some advisors are now looking for ways to either disclaim or rescind those gifts. One of the more talked-about court decisions at the conference was the August 2010 opinion in Breakiron v. Gudonis (see our Sept. 28, 2010, blog post), in which a federal district court allowed a disclaimant to revoke his disclaimer after he discovered that he had made a multi-million dollar gift.

Just as in 2010, advisors are recommending that clients make large gifts in 2011 and 2012, this time to take advantage of the $5.0 million exemption. But Heckerling speakers warned of the potential "clawback" of tax benefits for those who do so. If the estate tax exemption, as scheduled, returns to $1.0 million in 2013 and later years, speakers pointed out that the calculation of adjusted taxable gifts in computing the estate tax will result in a clawback of the tax benefits that accrued as a result of using the increased exemption in 2011 or 2012. Thus, use of the $5.0 million gift tax exemption in 2011 and 2012 will be beneficial only if the $5.0 million exemption is extended to 2013 and beyond.  Given the unpredictability of Congress, the speakers were reluctant to offer any prediction as to what will happen in 2013 or later.

Harold W. Pskowski, Managing Editor for Estates, Gifts and Trusts

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