Dec 15

Written by: Matt Brown
12/15/2010 11:47 AM  RssIcon

Title III of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is titled as follows:


That’s right. It’s temporary. Meaning more uncertainty. Great. Is estate and gift tax planning dead? To the contrary! The next two years will provide an enormous planning opportunity if the bill is passed.

The bill amazingly provides for a $5 Million gift tax exemption. No, that is not a typo. In the past, clients had to go to extreme measures to take advantage of the exemption amount as it increased above $1 Million: they had to die. Not surprisingly, no client has yet found that a viable planning technique.

As you probably know by now, House Democrats voted yesterday not to allow the bill to reach a floor vote, mostly based on the perceived give-away to the rich of the estate and gift tax relief provisions. It may be that, to satisfy House Democrats, the bill is amended to temporarily go back to a $3.5 Million exemption amount with a 45% rate of 2009.

But whatever happens, the next two years will be critically important years for making lifetime transfers given the potential return to a $1 Million exemption and a 55% rate. But it must be done in a very sophisticated manner, leaving flexibility to adapt to future law changes, to allow parents to retain an interest in some or all of the assets transferred to the trust (tricky but possible), and to avoid giving excessive amounts to children by allowing future diversion of funds to charity should the wealth transfer technique be too successful.

This tax relief is temporary, the deficit is exploding, and class warfare is once again in vogue (in 2001, when the current mess of an estate tax bill was passed, many expected to be multimillionaires via their tech stocks and therefore hated the estate tax).

I don’t know many clients with large estates who are expecting long-term relief, no matter which bill passes, our duty as advisors will be to move proactively to get our clients to act as quickly as possible to take advantage of very favorable laws while they are still around.

I hope this helps you help others.

Best regards,


Temporary Estate Tax Relief.pdf

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