New Gift Tax Rules May Not Last Long

On December 17, 2010 President Obama signed into law a new Tax Act, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (The 2010 Tax Relief Act).  This Act was a surprise to many, and the changes made to the gift tax area were the most astounding.  The annual exclusion for gifts was left alone at $13,000 per person that a donor wants to give to a donee.  However, the lifetime exclusion was unified with the estate tax exclusion and changed from $1 Million to $5 Million per individual.  That means that a family of wealth can effectively give up to $5 million, $10 million for a married couple, without any gift tax consequences.  It is unclear if their will be any recapture of this amount or clawback should the exclusion be lowered in the future.  Some members of the government already indicated that it was a mistake to not address this issue in The 2010 Tax Relief Act.  The President wanted to get this bill through before the end of the year, and the word on the Hill was to not even change a comma in the Act.
That is the good news.  This creates a tremendous planning opportunity for families that have a donative intent toward other family members.  However, this opportunity will only last for two years as the Act currently is written.  Further, President Obama has already indicated that he would like to modify this portion of the Act before it is set to expire.  He wants to see the exclusion back at $1 Million and the tax rate at 45 percent for gifts (it is currently 35 percent).  The message from this is that you should not sit and wait on this one.  If you want to take advantage of this opportunity you will need to act fast and do your planning, because this one is sure to not last long.