Gift and Estate Tax Changes – Are You Ready?

Recall the conversation between Robert Hayes and Leslie Nielsen in the movie Airplane?

                                Robert Hayes … “Surely, you can’t be serious?” 

                                Leslie Nielsen … “I am serious….and don’t call me Shirley.”

That pretty much sets the stage for this month’s newsletter about exit planning:   The “Are you serious?” state of confusion regarding gift and estate taxes.  Arguably, no other area of tax planning has been in such a state of flux. 

 One of the most common question business owners ask us is:

 ”I am thinking about giving my children an interest in our family business but I’m confused about changes in the gift and estate taxes. For tax purposes should I start gifting my ownership in 2012 or wait until 2013?”  

Fair disclosure:   Current thinking is a bit of “Who knows?” but most feel there will be changes to both the amount of the exemption and the estate tax rates that will result in added tax to the current owner.  In a world of no guarantees, it certainly appears that in most circumstances now is the time to gift.

Issues regarding gift and estate taxes focus on two key parts:  

                                                    The Lifetime Exemption Amount


                                                         Gift and Estate Tax Rates

Here’s a summary of what we know:

Exemption Amount:

  • 2001 – 2010:  The lifetime tax free exemption for gifts increased to the current amount of $5M
  • 2010 – 2012:  The above exemption, $5M, was extended though 2012 (with inflation, $5.12M)
  • 2013:             The lifetime exemption will return to the 2001 level of $1M

Tax Rates:

For 2013, the tax rate applied to the portion of gifts that exceed the amount of the lifetime exemption is scheduled to increase from 35% to 55%.

There you have it.  A perfect storm! The amount of the lifetime gift that is exempt will be sharply reduced and the tax rates applied to the amount exceeding the exemption will increase.

Of course there is speculation, and thus confusion, regarding everything from continuing extensions of the current rates to a retroactive adjustment of future rates on gifts given now.  Recent experience indicates that these types of changes are just not predictable.

Our opinion is that the current combination of historially high exemptions and historically low rates make it an ideal time to start the transition planning now while there is still time to implement your plan in a more tax friendly environment.  Waiting until 2013 to start your plan will likely cost you more in taxes.

If you’re ready to move forward, one of the first steps is to make sure you have an up-to-date value for the business.

Using the valuation and working with your advisory team, you can determine the best way to structure the ownership transfer.  Finally, complete the transfer.  Lastly, Happy New Year….smart move!

If you have questions about gift and estate tax planning, feel free to contact us at CI Harvest.  We are happy to assist you in determing a plan that’s best for you!

About the author:
Greg Caruso, Esquire, CPA, CVA works with lenders and business owners so they develop exciting goals and then surpass them through the exit and succession planning process, business brokerage, and business valuations. Greg is active in the valuation practice at Harvest Business Advisors and also oversees exit and succession planning activities. He focuses on engineering firms, contractors, wholesalers, manufacturers, and professional service providers.
My website is at:


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