Possible Reduction of Gift, Estate and GST Tax Exemption on November 23, 2011

November 11, 2011

On November 23, 2011, the Congressional Joint Select Committee on Deficit Reduction (known as the “Super Committee”) is scheduled to release its report announcing proposals for deficit reduction. It has been rumored that among the Super Committee’s proposals are several changes affecting the gift, estate and generation-skipping transfer (“GST”) tax.

As noted in our Bulletin from last December, the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 increased the lifetime gift and estate tax exemption and the GST tax exemption to $5 million in 2011. The exemptions are scheduled to be increased to $5,120,000 in 2012. Absent change in the law, on January 1, 2013, the gift and estate tax exemption is scheduled to revert to $1 million, and the GST tax exemption to slightly more than $1 million.

One change rumored to be included in the Super Committee’s proposals is to make November 23, 2011 the date upon which the exemptions revert to as low as $1 million. If this change is included in the Super Committee’s proposals and enacted into law, anyone who has not yet used their enhanced $5 million exemption may lose the ability to do so.

In addition to the proposed change in the exemption amount, the Super Committee may limit the minimum term of grantor-retained annuity trusts (“GRATs”) to ten years. GRATs are popular estate planning devices that often have terms of five years or less. Congress has repeatedly discussed changing the law to require GRATs to have a minimum term of at least ten years, but until now no such change has been enacted. Generally, a longer GRAT term increases the possibility that this powerful estate planning device will not succeed.

Other rumored changes include limits to discounts on transfers of interests in family limited partnerships, and estate, gift and GST tax rate increases.

While we cannot comment on the accuracy of any of these rumors, the likelihood that Congress will actually enact the proposals, or whether any such changes would in fact be effective as of November 23, 2011 (another possible date could be January 1, 2012), we suggest that anyone who is planning to use some or all of their enhanced $5 million gift and GST tax exemptions consider doing so before November 23, 2011. Furthermore, with interest rates at a historic low, if you are considering creating a GRAT, now would be a good time to do so.

If you have any questions regarding this Bulletin or would like to take action prior to November 23, 2011, please contact one of the attorneys listed below.


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