Make Gifts Before It’s Too Late

S. Cal Est and Tax Pl Forum

The consensus at the 2012 Southern California Tax and Estate Planning Forum is that recapture or clawback will not occur for gifts made in 2012. And even if it does, the opportunity cost of not making a gift this year will significantly outweigh any potential harm.

From Prof. Samuel Donaldson:

The short answer is that individuals in a position to make large wealth transfers should most definitely strike now, as the proverbial irons could not be hotter. In addition to the potentially expiring window for utilizing a $5.12 million exclusion amount, two other factors indicate that this is a strategic time for wealth transfers. First, if one believes that asset values have more or less bottomed-out and that the darkest days of the Great Recession are behind us, one ought to make a large gift now before asset values begin to grow significantly.

And this:

If Congress ever acts, it will do one of four things:

(1) implement a “reduced” exclusion amount (i.e., one that is less than the $5.12 million amount in effect for 2012);

(2) extend the current $5.12 million exclusion amount, with or without adjustments for inflation;

(3) implement an “enhanced” exclusion amount (i.e., an amount greater than the $5.12 million amount in effect for 2012); or

(4) repeal the federal estate and generation-skipping transfer taxes (which may or may not bring with it repeal of the federal gift tax). The following table explains how a large wealth transfer in 2012 might appear in hindsight depending on which of those options Congress selects:

How would a large wealth transfer in 2012 look in hindsight?

1. Reduced exclusion (<$5.12M) Smart

2. Current exclusion ($5.12M) Smart, if asset values grow; otherwise, “meh”

3. Increased exclusion (>$5.12M) Smart, if asset values grow; otherwise, “meh”

4. Outright repeal Silly

The only scenario in which a large gift today appears silly is if Congress repeals the federal estate tax. The likelihood of this is left to the reader to guess.


Recapture Clawback of 2012 Gifts


There is lots of anxiety among attorneys and clients about the scheduled estate and gift tax law change in 2013. In 2012, you can gift up to $5,120,000 without a gift tax. But in 2013, both the gift and estate tax exclusion drop to $1,000,000. The big concern is whether gifts made in 2012 in excess of $1,000,000 will be clawed back or recaptured and subject to estate tax.

I’m attending the Southern California Tax and Estate Planning Forum in San Diego. Jonathan Blattmachr just said he does not think clawback or recapture will be an issue next year. He said Harry Ried has, or will, introduce 2 bills that will prevent recapture. If the chief Democrat in Congress wants to avoid recapture, Blattmachr thinks it’s a good bet recapture won’t be a problem.