Maximize Use of the 2012 Gift Tax Exemption: A “Defined Value” Formula Clause Approach

For 2012, the cumulative lifetime gift tax exemption is $5.12 million per person ($10.24M for married couples), with a 35% tax rate on gifts over that amount.  Unless Congress takes action, the exemption is scheduled to decline to $1 million next year, with a 55% tax rate on gifts in excess of the exemption.

Most advisors regard the 2012 exemption as a great gifting opportunity that Continue reading »

Major Family Gifting Faces Headwind if Obama’s Budget Proposal Passes

On February 13th, the Obama Administration released its fiscal year 2013 budget, including various estate tax proposals that, starting in 2013, would result in:

1. Reducing the lifetime gift exemption back to $1M (the 2009 level)
2. Reducing the overall estate tax exemption to $3.5M (the 2009 level)
3. Increasing the top estate tax rate back to 45% (the 2009 level)
4. Making the trust assets in the IDGTs (Intentionally Defective Grantor Trusts) includible in the grantor’s estate
5. Modifying the rules on valuation discounts
6. Requiring a minimum 10-year term on GRATs (Grantor Retained Annuity Trusts)
7. Making permanent the portability (carryover) of unused estate tax exemption amounts between spouses.
8. Limiting the duration of the GST exemption to 90 years

Among the Administration’s various proposals on estate tax law changes, the most damaging one is the proposed reduction of the Continue reading »

Need cash? Don’t borrow from the IRS!

Many businesses and individuals are experiencing cash flow difficulties in today’s economy. To ease the cash crunch, it may be tempting to delay payment of taxes in the hope that finances will improve soon. Unlike other creditors, the IRS moves relatively slowly, lulling the taxpayer into complacency. During this time, interest and penalties accrue which, in some situations, can even exceed the original tax due. When the IRS decides to act, they often file liens, levies, and other garnishments that can cause significant and sometimes permanent economic damage. In addition to these civil penalties and collection actions, the IRS can pursue criminal charges. The failure to truthfully account for or turn over taxes is a felony, with the potential of up to five years of jail time. This applies to all taxes under the Internal Revenue Code – income tax, payroll tax, gift tax, and excise tax, to name a few. Continue reading »