GIFT TAX SET TO INCREASE IN 2011—CONSIDER 2010 GIFTS
Lifetime gifts in excess of $1,000,000 are subject to Federal gift tax. Absent new legislation, the maximum Federal gift tax rate will be 55% in 2011. By comparison, the maximum Federal gift tax rate in 2010 is 35%--the lowest rate since 1934.
The historically low Federal gift tax rate and concurrent lapse in Federal generation-skipping transfer (“GST”) tax in 2010 are good reasons to consider a gift before the end of the year. Loan forgiveness or direct gifts to grandchildren in 2010 are particularly tax efficient because not only does the donor take advantage of the low gift tax rate, but such planning also avoids the GST tax that a transfer to grandchildren in any other year would incur.
While the risk remains that new legislation will retroactively increase the 2010 gift tax rate and/or retroactively reinstate the GST tax, this possibility becomes more remote as the year draws to a close (and there are ways to structure gifts so as to attempt to limit the effect of any retroactive legislation).