"Do you feel lucky" - Unprecedented Estate Planning Opportunity Could End Soon
You may remember Dirty Harry (Clint Eastwood) saying this to a criminal:
“I know what you’re thinking: "Did he fire six shots, or only five?" Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: "Do I feel lucky?" Well do ya, punk?”
As it turned out, Harry’s gun was in fact empty.
For the rest of 2012, Congress is much like Dirty Harry, except Congress’ gun is loaded and it will shoot a hole in many current planning opportunities on January 1, 2013 unless Congress decides to take the bullets out of its gun. “Do you feel lucky?”
Families desiring to pass wealth to future generations are in what some experts are calling the “Perfect Storm” of estate planning because asset values and interest rates are low, while the gift and estate tax exemption are at an all time high of $5 million ($10 million for married couples) and tax rates are at an all time low. In addition, transfers of interests (e.g., those in a family business) are able to receive valuation discounts (often up to or above 40 percent) that can further reduce estate and gift taxes. Unfortunately, rising asset values and changes in the tax laws could bring this “Perfect Storm” to an end over the coming months. While no one can predict what will happen, asset values are expected to rise and tax laws are scheduled to change. Congress could extend the current laws, but no one expects that to happen. If Congress does nothing, the estate and gift tax exemptions are scheduled to revert to about $1 million per person and rates will revert to the old higher rates. Virtually all proposals for changes call for exemptions below the current $5 million and rates above the current rates. Many include adding restrictions to or eliminating discounts and other useful planning devises. If you expect to have more than $1 million after January 1, 2013, you should strongly consider exploring your options for taking advantage of the current 2012 rules before they expire or are changed. There are some techniques which may allow you to take advantage of the current rules without having to make outright transfers to others. So unless you “feel lucky” and think Congress will “take the bullet out of its gun,” explore your options before it is too late.
Do Your Estate Planning Now
Those who wish to transfer wealth to their children should take advantage of the current estate planning opportunities within the next few months in order to ensure that the maximum amount is saved in estate and gift taxes.