Tax-Free Wealth Transfer: This Season's Best Gift

Give it before Uncle Sam takes it away.


Last December’s estate tax legislation was an exceptional present for families. For the next two years, tax laws were enacted to raise the gift-tax exemption from $1 million to $5 million for individuals and from $2 million to $10 million for couples.

Simply put, a couple can gift up to $10 million and not pay a penny in taxes to the federal government. Another offering from the same legislation set the tax rate on gifts above those amounts at 35 percent; the tax rate was scheduled to be 55 percent.

[In Pictures: 6 Numbers Every Investor Should Follow.]

Wow, that sounds too good to be true—no, it’s too good to last! The legislation that set the higher exemption thresholds for gift taxes and estate taxes will only last for 2011 and 2012 before it re-sets to lower levels. So now is the time to make a substantial gift and remove assets from your estate.

Wait—why the rush? We still have the balance of 2011 and all of 2012 to make our gifts.

Enter the “Super Committee,” the 12 members of Congress evenly split between Democrats and Republicans, charged with finding $1.2 to $1.5 trillion in debt savings over a ten-year period. If they can’t come up with an agreeable plan by November 23, an automatic $1.2 trillion in spending cuts kick in, evenly divided between defense and non-defense spending.

As this committee searches for revenue, it clearly understands the revenue impact of some of the lower estate and gift tax rates brought about by last year’s legislation. Given the enormous budget deficit and charged political environment, it is uncertain if the current exemptions will remain intact through 2012.  It is possible that the Super Committee and Congress could make changes to current tax law and alter the gift and estate tax rates for 2012—along with changes to several other estate planning strategies, such as GRATs (Grantor Retained Annuity Trusts) and discounts for family transfers.

It remains to be seen what actions Congress will take with respect to finding the required $1.2 trillion in savings. Therefore, we must conclude that changes to our current tax law are a likely possibility. Here’s what we do know: Between now and the end of 2011, we have the ability to make a sizable and significant gift of $10 million per couple or $5 million per individual without incurring the gift tax. It’s clearly the best gift of the season for anyone with significant assets.

Dean J. Catino, CFP®, CPRC, is a managing director and cofounder of Monument Wealth Management in Alexandria, VA., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer. Securities and financial planning offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Monument Wealth Management has been featured in several national media sources over the past several years. Follow Dean and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth and @DeanJCatino, and on their Facebook page. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate please consult your financial advisor prior to investing.