Planners say big gifts now right now could save heirs later
By Charles Passy
Last Update: 10:19 AM ET Oct 2, 2012
For those weighing what to do with the assets they have accumulated over a lifetime, the next few weeks may be time to make the final call.
Thats because the current federal tax exemption on estates and gifts is set to roll back on Jan. 1 from $5.12 million to $1 million -- the same level it was at in 2002, before tax cuts passed during the George W. Bush era went into effect.
And just as banks and mortgage brokers often encourage clients to lock in todays low rates, estate attorneys and other financial professionals are telling people to take advantage of the high exemption while it is still in effect, often by making sizable gifts under the current limits so that they can reduce the size of their estate -- and the potential tax hit -- at the time of their death.
Just as important, say the pros: If an individual waits too long to begin the process, there is a good chance they wont be able to complete the paperwork before years end.
Of course, estate attorneys and other financial professionals have sounded this alarm before when estate and gift taxes were up for review -- and Congress hasnt always played into expectations. For the calendar year 2010, for example, the estate exemption was basically eliminated, meaning taxes werent automatically imposed on the estate of anyone who died that year. (The exemption rules changed yet again when a new tax act was approved later in 2010, although the no-tax rule still applied in some instances.)
But financial experts warn that todays political and economic climate could make it difficult for Congress to kick the can down the road and maintain the current exemption policies, even though many Republicans, including presidential contender Mitt Romney, have advocated eliminating the death tax altogether. (President Barack Obama has proposed a $3.5 million exemption.)
In other words, a $5.12 million exemption may be a deal worth taking, especially when weighed against the likelihood of a full repeal of the estate tax going into effect by years end -- or ever, for that matter. My guess is that these are the best rules youre going to get in your lifetime, says Steve Kunkel, a managing director at CBIZ MHM, one of the nations largest accounting firms.
Mr. Kunkel echoes the point about timing: If you believe 2012 is the year to map out your estate, the real deadline to begin planning is, well, now.
The reason: Estate planning involves many interlocking parts -- and each demands a degree of time and attention. For example, for gifts that include assets other than cash, such as real estate, appraisals are required. But because of the end-of-year planning rush, an appraisal could take up to two months, say estate attorneys.
That alone makes putting off a decision until the end of the year in hopes of getting some clarity from Washington a risky bet.
December is far too late, says California estate-planning attorney Janet Brewer, who is affiliated with the legal-advice website Avvo.com. Even if a lawyer has time to meet with a client, its simply too difficult to finish the process in three or four weeks.