Congressional activity with respect to the estate, gift and generation skipping transfer tax area is changing almost hourly. As we write this, the tax bill passed by the Senate and House and which will be signed by the President today (perhaps by the time you read this) provides for a $5 million exemption from gift taxes, with a maximum gift tax rate of 35%, effective as of January 1, 2011. The framework for this tax bill was agreed upon by President Obama and Republicans on December 6, 2010, and this large gift tax exemption and low tax rate came as a surprise to virtually all tax-watchers.

We previously alerted you to the fact that making a 2010 gift in excess of $1 million (the 2010 gift tax exemption) and paying tax at the 35% gift tax rate could be a good strategy.

However, under the terms of the new tax bill which will become law, in most cases it would be far more beneficial to wait until January 2011 to make large gifts. This may not be true for gifts to grandchildren or more remote descendants.

Please call us to discuss this further if you have been contemplating a large gift before year end, particularly a gift to a grandchild.

We will be updating you with further details on what the new tax bill, once enacted, means for your estate planning. In the meantime, we wish you the best for the holidays and the New Year.

If you have any questions about this article, please contact James B. Ellis, Ellen I. Kahn, Hilary C. Pierce, Sandra B. Price, or C. Jean Ryan at Sideman & Bancroft.

This publication is for informational purposes only and is not intended to provide legal or tax advice, or to create an attorney-client relationship.

Pursuant to IRS Circular 230, unless expressly stated to the contrary, any tax advice is not intended and cannot be used to (i) avoid penalties under the Internal Revenue Code or (ii) promote, market or recommend any transaction or matter to another party.