The Window of Opportunity for Some Types of Planning May Be Closing (Quickly)

February 2, 2010

We previously announced that there is currently no federal estate or generation-skipping transfer tax in effect in the United States. The federal gift tax, however, is still in effect. The burning question is whether Congress this year will (i) extend the law that was in effect at the end of 2009, (ii) make repeal of the estate tax permanent, or (iii) do nothing, in which case on January 1, 2011, the estate, gift and generation-skipping transfer tax laws from 2011 will go into effect. For a more detailed discussion, see Estate Planning in 2010: Thoughts On What To Do In Uncertain Times. We want to inform our clients who are interested in minimizing estate, gift and generation-skipping transfer taxes that the window of opportunity for a number of popular estate and financial planning techniques may be closing. This week, President Obama released a 2011 fiscal year budget that confirms many of our “Time is Running Out” concerns. One of these proposals involves a modification of estate and gift tax valuation rules that would require consistent valuation for both transfer and income tax purposes. Another would impose certain limitations on transfer tax valuation discounts. A third would require a minimum term for GRATs (grantor retained annuity trusts). It’s a long way from a proposal to effective law. But with a fiscal crisis as severe as the one we are going through – the probability of enactment is higher and the time for effective action may be getting shorter. Amid all the chaos of estate tax repeal and rebirth, there is (with relatively low interest rates, relatively low transfer tax values, more than good valuation discounts, and some terrific Code sanctioned planning techniques) a window of opportunity, but it may be closing quickly.
If you have questions regarding the above, please contact Mark Bradley, the author of this article, or any of the attorneys in the Trusts & Estates Practice Group of Ruder Ware.

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