Going, Going, Gone!
U.S. taxpayers are experiencing a “perfect storm” of opportunity to make tax-free transfers (gifts) of assets such as family businesses, real estate and other wealth from one generation to the next. The gift tax was first enacted in 1932 by the federal government. Over the coming months, we all have what may be the best opportunity since 1932 to gift family assets without a gift tax now and to avoid significant estate taxes later.
Two notable exceptions to the gift tax
Some people are not aware that giving away assets to their children or other individuals may create a taxable event. The “gift tax” referenced above applies to anything of value transferred by one individual to another. There are two notable exceptions to the gift tax. One is an “annual exclusion” which is an exception that allows individuals to gift up to $13,000.00 per year per person without any gift tax consequences.
A second exception is an overall gift tax exemption which historically has been limited to $1M during an individual’s lifetime.
As we counsel clients during the preparation of their estate plans, one concern is usually very evident – parents are worried that their children will squander the funds and assets that they worked very hard to accumulate. This concern can be addressed in many ways, but usually, parents request specific provisions in their estate planning documents that control an heir’s access to distributions based upon age, accomplishments, and certain life choices. Therefore, the assets are distributed largely because a specific milestone has been reached. The thoughtful nature of the distribution planning, however, leaves a primary problem unaddressed – preparing the heirs for wealth transition from one generation to the next.
Studies conducted by various institutes demonstrate that many estate plans that have been completed and then updated carefully and competently throughout the years, successfully address the issues relevant to the parents’ wishes. The attention to detail, however, cannot necessarily fill the gap of the heirs’ lack of direction and instruction that results in chaotic estate administration, family disharmony, and relationships that remain broken forever.
Dan A. Penning has been invited as a featured speaker to present on the topic of estate and gift tax issues concerning cottage succession planning at the ICLE 51st Annual Probate & Estate Planning Conference for Michigan attorneys. Penning will join two other speakers addressing cottage law succession planning issues during the three-day conference featuring a variety of topics for Michigan attorneys seeking continuing legal education. The conference will be held at the Grand Traverse Resort, in Acme, Michigan on May 19-21, 2011 and a second presentation will be held at The Inn at St. John’s in Plymouth, Michigan on June 17-18, 2011.
Planning for the succession of ownership and operation of the family business for next generations presents many tax and non-tax challenges for the family business owner. Oftentimes, keeping the family business in the family involves having to choose between implementing strategies to accomplish tax benefits at the expense of implementing other strategies that may provide a greater likelihood the business will continue to prosper and be managed properly in the future.
Substantial yet limited opportunity
Well, as is addressed in the article below, Congress presented family business owners an unprecedented planning opportunity by enacting the legislation extending the Bush era tax cuts and expanding the estate and gift tax credits at the end of last year. While the opportunity is substantial, it’s limited and likely to undergo changes and possible repeal at the end of a short 2 year window with the current law set to expire at the end of next year, 2012.
New Year – New (Extended) Tax Laws
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. (The “Act”)
After great speculation and debate, Congress has now passed and President Obama has signed a tax package which gives individuals and businesses some predictability for the next two years through December 31, 2012. The Act extends the Bush-era tax cuts, provides estate tax relief, an “AMT” patch, a reduction in employee paid payroll taxes and provides businesses with new incentives to make capital investments by extending depreciation and tax credits.