As part of the tax cuts scheduled to end at the end of the year under the fiscal cliff, the gift tax exemption of up to $5,120,000 could drop to $1,000,000 in 2013, and many wealthy clients are looking to take advantage of that closing window of opportunity. But making a large gift now may not be for everyone, he cautions.
“One of the things that I’ve been careful about is urging caution,” he said. “Yes, it’s an opportunity, but I’ve been urging our clients don’t give away what you’re going to need.”
Some wealthy clients are nervous and, feeling “backed into a corner,” have reached out looking to move their money around because they have heard the stories or know of friends and neighbors who are bestowing large gifts, Behrendt noted.
“I’m a little concerned that some folks are going to see this and read about it and get caught up in the hype,” he said.
While it make sense for a $20 million or above high net worth individual or someone who may be in their nineties to look into giving, the move may be premature for a number of individuals who are just entering retirement, for example.
Behrendt reminds many such clients that there are no half-measures whereby an investor can still continue to reap income from the assets once they have been gifted.
“You can’t transfer the title to your home and still live there,” he said. “You can’t have your cake and eat it too. There are slight variations to that, but as a general rule you have to be willing to part completely with any use or enjoyment [of those assets].”
There are other strategies that Behrendt is bringing up in lieu, such as smaller gifts. He reminds many clients who may have a longer time horizon that they can gift tax free for up to $13,000 this year and $14,000 in 2013.
”They’re not making that big up front commitment,” he said. “So for probably the vast majority that’s all you need.”
Moreover, Behrendt has not taken the option off the table that the gift tax exemption could be extended at the full $5,120,000 next year.
“I may be in the minority on thinking that’s still a possibility with all the discussion you hear and every time you turn on cable news about raising taxes,” he explained. “But what I think is imp in that debate is the estate tax counts for less than 1 % of overall revenue so there’s room for it to be kind of a bargaining chip.”