Feb 22, 2011
Dear Liza: My elderly parents are contemplating accelerating gifting of considerable assets to their children to take advantage of the current $5 million personal exemption in place through 2012. What are the consequences if they gift based on this exemption level and it is reduced before they die? Would the estate tax rules at the time of death apply regardless of what gifting was already conducted under the current law? I don't have a crystal ball, that's for sure. And many of the details about how this is going to work are yet to be worked out, to put it mildly. And most estate planners are currently advising clients who can take advantage of the incredible gift tax break to do so. Under existing law, your parents' gifts wouldn't be retroactively taxed if the rules change after they've made those gifts. It's just like income taxes -- you pay under the rules in place in the year that is relevant. If later on tax rates change, you haven't been required to repay taxes that would have been due in a previous year under then-current law. If your parents made any taxable gifts during their lifetimes, though, these have been part of the estate tax calculation that's made, but they get a credit for any gift taxes already paid. One of the areas of uncertainty, certainly, is what would happen should the gift tax exclusion be significantly reduced in future years--and I wish I could give you a better answer. For now, your parents, and everyone else, are going to have to make a decision with imperfect information.