As we begin to emerge from the moratorium on hockey that is the NHL lockout, many fans are enraged that such an agreement could not be reached between the NHL and the Players Association earlier. Why wait so long to finally make the compromise necessary to put the players on the ice and fans in the seats? With the entire 2012-2013 season on the verge of cancellation, the parties experienced a renewed sense of urgency. That is when tough decisions are usually made.
Recently, the U.S. Congress also faced an expiring contract, relating to estate taxes and gift taxes, which had significant adverse consequences to Americans if permitted to do so. As recently reported on by the New York Times, in 2010, as a result of President Obama and Congress being unable to reach an agreement on the tax exemption limits for estates and inter vivos gifts, for the first time since 1916, Americans were not subject to a federal estate tax. By the end of 2010, the President and Speaker of the House reached a two year agreement to set the estate tax exemption, as well as the gift exemption, at $5 million, indexed to inflation. If left to expire, the gift tax would have reverted to $1 million. As a result, may estate planers spent this most recent holiday season restructuring estates and transferring significant wealth, in the form of gifts, to take advantage of the higher exemption level prior to its expiry.
On New Year’s Eve, as a gift to Americans, Congress passed the American Taxpayer Relief Act, permanently setting both estate and gift exemption limits at $5 million (with a 40% tax on amounts over the limit).
Many Americans woke up on New Year’s Day with regrets… regrets over having transferred significant wealth to their children (and out of their own control) when, in retrospect, such transfers could have been delayed. Now begins their search for ways to unwind such transfers, if possible. While estate planning may now become simpler (such exemption limits eliminating estate taxes for all but the wealthiest of Americans), contract lawyers should be pretty busy in early 2013.