John McManus was interviewed by Joe Mont of The Street for his article, “Debt Crisis Could Change Estate Tax.” John had this to say:
Thus far, changes to the budget compromise reached earlier this year between President Barack Obama and Republicans on the Bush tax cuts for the wealthiest and estate taxes have been spared any effort to boost national revenues.
But legacy plans may still need to be revised sooner rather than later, says John O. McManus, founding principal of New York- and New Jersey-based McManus & Associates and a tax planning expert.
Currently, a patriarch or matriarch can give children, while they are still alive, up to $5 million without triggering the gift tax. Doing so allows that money to be spared a 55% tax hit via a so-called “death tax.” The $5 million limit could also be used upon death to shelter a portion of assets. Before the budget compromise, that limit was $1 million.
McManus says the real advantage is in being able to give away that money while you are still alive, but the ability to do so is in danger.
“The way that the Democrats negotiated the deal, and the way it was set up, is that it was only an extension for 24 months,” he says. “This whole thing evaporates Dec. 31, 2012.”
Given the tremendous wealth that will shift from aging baby boomers during he next 20 years, Democrats have taken “some solace” in the fact the compromise is short-term, McManus adds.
“They don’t want people giving away $5 million because 10 years from now that $5 million would have been $10 million back in the client’s estate and they would have gotten a 50% percent tax on that,” he says. “Because of the mounting debt crisis, there is a risk here that the first thing in jeopardy here is the amount of money that you can gift away … There clearly is looming a freight train coming down the track. We can see the smoke billowing and the light flickering. It is far enough down the track, but it may be picking up speed.”
In the meantime, so long as the gift tax exemption is on the table, McManus sees it as a “massive opportunity.”
But there’s a catch, he says. Read the rest here.
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