Special Tax Alert

Well, the results are in.  President Obama has been re-elected.  The Democrats have won the Senate.  The Republicans have won the house.  No party can claim a mandate.

What does this mean for us?  From the standpoint of estate and gift taxes, it means a lot.  Currently, each individual has a $5,120,000 exemption from the federal estate tax.  The exemption also applies to lifetime giving.

These exemptions are scheduled to expire at the end of this year.  Absent new legislation, the current law will sunset and the exemptions will revert to $1,000,000.  In that event, estates in excess of this amount will be taxed at rates ranging from 41% to 55%.   The exemption for gifting will be $1,000,000 as well.

Three scenarios could occur as to this law: (1) the current law could be extended, (2) the current law can expire and we can revert to the old law, or (3) new legislation can be passed.  Most likely, the second scenario will play out.

Why? President Obama has stated that he would not extend the current law before and that was when he had incentive to work with the Republicans on this issue.  He proposed a compromise of a $3,500,000 exemption which was rejected.  Moreover, he does not have to do anything to reinstate the $1,000,000 exemption.  The law will change, for lack of a better term, due to inaction.  Finally, the chance of new legislation being passed is slim.  The gridlock inWashington will not be broken over this issue.

So, what should you do?  Without question, you should review your existing estate plan.  Gifts can be made between now and the end of the year up to the $5,120,000 exemption amount.  These can be outright gifts or those made through a variety of trusts.

Contact an attorney in our group.  We will be happy to assist you in any way we can.