Promises, Promises…The Only to Way Lock in the 2012 Estate / Gift Exemption is to ACT on It!


Over the past few years, we have urged our clients to review their estate plans and financial goals with respect to the opportunity to lock in a $5.12 million dollar estate/gift exemption this year given that next year the exemption will drop to $1 million if Congress does not act.  Many of our clients have already taken the steps to lock in the exemption now.  In other words, they have given away their assets in 2012, through devices like irrevocable trusts, and many more clients have called us recently to start the process.  That process can include drafting trusts, conducting appraisals, actually transferring the assets, and filing gift tax returns.  All of those things take time, which is why we have been relentless in explaining this issue and the need for immediate action.

Of course, whenever there is a correct way to do something that requires time and effort, there will be people who try to find an easy way out.  That is exactly what is happening with the 2012 exemption.  Some estate planning attorneys have suggested that their clients can simply promise to give their assets away in 2012, without actually transferring the assets.  The hope is that by promising to give away the assets  a person locks in the $5.12 million estate/gift exemption in 2012 even without a transfer.  However, this type of promise to give, without an actual transfer, will almost certainly not lock in the exemption.

Why does promising to give assets not accomplish the same thing as actually transferring the assets?  Without going into technical detail, when the person dies, the assets they promised to give are still in his or her gross estate, and there is no allowable deduction for the amount promised, nor is there an allowable credit for gift taxes paid since the taxes were not paid and the property was never really transferred.  Thus, if a person promises to make a gift, but does not move the promised assets out of their estate for estate tax purposes, they have failed at locking in the estate/gift tax exemption.

Locking in the estate/gift tax exemption in 2012, like all estate planning, requires thorough and comprehensive planning to properly accomplish a client’s goals, which most times does not include an easy way out.

What does this mean for you?  You need to quickly evaluate your estate plan and assets and determine if you need take action by locking in the 2012 estate/gift exemption.

What does this mean for us?  We are going to be very busy in these final days of 2012, talking to clients and advising them on the best ways to lock in the 5.12 million exemption.  If you want to explore this opportunity, please begin the process NOW, before it is too late!

–  Michael Wolsh, Esq.

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