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Wealthy scramble to make last-minute gifts

Looming changes in the estate tax and gift tax are keeping tax experts busy. But it's hard to make decisions without knowing what measures will be adopted.

By MSN Money Partner Dec 27, 2012 1:12PM

This post is by Laura Saunders of The Wall Street Journal.© Kate Kunz/CorbisEstate planners say prospective clients who want to give away millions of dollars before Jan. 1 are bombarding them with last-minute requests for tax advice.


Many people waited until after the election to decide to give, says Diana Zeydel, an estate lawyer at Greenberg Traurig in Miami. "Now they're concerned the window of opportunity is closing, and we're working till 11:30 or midnight every day, including weekends," she says.


Stacy Singer, an estate expert at Northern Trust in Chicago, says the firm has reviewed 500 new trusts since October, more than double the typical number. "Most appraisers stopped taking new business in early November," she says.


For 2012 the gift- and estate-tax exemption is $5.12 million per individual and twice that per married couple, with the excess taxed at a top rate of 35% — the most generous terms in decades. On Jan. 1, 2013, the exemption is slated to drop to $1 million and the top nominal rate to rise to 55%.

Both the rate and the exemption are part of the current "fiscal cliff" negotiations, however, so the ultimate outcome is uncertain. President Barack Obama favors a $3.5 million exemption per individual, of which only $1 million can be used for gifts made during a person's lifetime, and a 45% top rate. Many Republicans — and some Democrats — would like to abolish the tax altogether.


Meanwhile, a group of wealthy people including Buffett and Bill Gates Sr., the father of the Microsoft founder, recently called for a $2 million-per-individual exemption and a 45% top rate. Some longtime tax experts, based on gut instincts, think the current regime will remain in force.


Since this year's exemption applies both to gifts made during one's lifetime and to assets in an estate after death, people who use up their allowance this year won't get one when they die, unless the law becomes more generous. In many cases such a move makes sense, because it removes future appreciation from the estate.


What happens to this year's gifts if the exemption shrinks or the rate rises? Many experts think they won't be affected. "I don't think Congress's intention was to set up a 'gotcha,"' Zeydel says. At worst — if there is a "clawback" of some assets — she and others think it won't include any appreciation after the date of the gift.


A bigger worry is the difficulty of cramming complex decisions into little time. Givers face a wrenching emotional decision — handing over control of a large sum — and planners must work with myriad legal complexities to do quickly what usually takes at least three to six months.


Last-minute planning is especially difficult when much of a couple's wealth is possessed by one spouse — say, in a large individual retirement account.


Expert opinion is divided about one last-minute technique some planners advocate called a "donative promise gift." Givers using it make an irrevocable promise to deliver assets at a future date. While many agree this technique works in Pennsylvania, where the law is established, it is less clear that it works in other states.


Carlyn McCaffrey, an estate lawyer at McDermott, Will & Emery in New York, is reminding some last-minute givers of a simple place to start: Give cash or forgive loans to relatives or friends.


For gifts requiring an appraisal that can't be made until next year, she says it might be possible to give a fixed-dollar amount of an asset this year, with the percentage determined by the appraisal. In a few other cases a giver might be able to borrow a large sum, put it in trust and have the trust buy assets later.


But, as she warns, "Beware of cookie-cutter approaches." Howard Zaritsky, an estate attorney in Rapidan, Va., who advises on complex cases, agrees. "This rush makes me fear that in four or five years I'll be called to be an expert witness on lots of estate malpractice cases," he says.


More from The Wall Street Journal and MSN Money:



Dec 28, 2012 1:51PM

Life is tough for the 'don't tax me bro' crowd.

Dec 28, 2012 12:59PM

So when wealthy people make legal use of the current tax laws to save taxes it's called dodging taxes, but when a less prosperous individual deducts charitable donations, medical deductions, interest on mortgages, etc. that's just good tax planning.

You don't see the double standard?  You, me, Romney, Bill Gates, your neighbor next door abide the best way they know how with current tax law.  The LAW is unfair, complicated, and confusing on purpose.  It's used by politicians to keep YOU confused and angry so they can direct that anger at people of different income levels.  Weather it's your jealousy of those better off than you or discussed with those utilizing the generous freebies provided by the taxes you pay.

ALWAYS remember, if you're angry, it's exactly what they want.

The EVIL lies in the government.  NOT the people living by the law.

Dec 28, 2012 12:04PM

Nice to know that the only worry some people have is how to dodge taxes on the money the want to give away.

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