Check out John McManus’s letter to the editor regarding the gift tax exemption on NJBIZ.com:
Move fast to reap tax advantage
As part of the extension of the Bush tax cuts, Congress recently brokered a deal to include the single greatest “gift” tax relief of our lifetime. For many, it’s an unknown secret that up to $5 million can now be gifted away without the payment of any tax. However, this opportunity is set to expire in short order: the $5 million gift tax exemption only stretches to 2012.
Estate planners often recommend that clients push assets into their loved ones’ names to minimize estate tax and ensure that the future growth of such assets is off the client’s balance sheet. Until this year, a roadblock was quickly hit, as gifts in excess of $1 million suffered significant tax levies at confiscatory rates of up to 50 percent.
To take advantage of this unique environment, business owners and fortunate families should now gift assets, including company interests, into trust for their loved ones. Being a gifting donor does not necessarily mean gifting control.
It’s also important for business owners not prepared to gift away portions of their company to know that they have another option: Selling a non-controlling portion of one’s company to one’s children, in trust, will allow the children to utilize the revenue from that transferred portion to pay off the parent and business owner over a period of time.
An additional advantage of transferring non-controlling interests is that the business owner may enjoy a discount on this value. President Barack Obama has already indicated that he wants to radically cut back or eliminate valuation discounts when the transfer of business interests is between family members.
Move quickly, assess the relative advantages of these strategies and act resolutely thereafter. Missing this twilight period could prove to be taxing on your mind and your balance sheet.
John O. McManus, founding principal
McManus & Associates