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A Lame Duck And A Big Giveaway

Nobody who practiced estate planning in the United States two years ago is likely to forget the last time Congress engaged in a lame-duck session.

President Obama had just been re-elected, the country was approaching the dreaded “fiscal cliff,” and tax laws that allowed married couples to give their heirs more than $10 million tax-free were set to expire on New Year’s Eve, with the tax-free amount due to drop thereafter to $2 million, with everything above that subject to a 55 percent levy.

My colleagues and I were swamped as we helped clients plan and execute year-end gifts. Many of the attorneys who had to draft trusts and other documents to implement these estate plans barely saw their families between Christmas Day and New Year’s Eve. We had all known for two years that the deadline was looming, and we had all told our clients early and often, but human nature ensures that any deadline is apt to produce a lot of activity at the last minute.

The impressive scale of that activity is documented in newly released IRS figures. Bloomberg reported that returns filed in 2013 disclosed $391 billion in nontaxable gifts for 2012. This was nearly four times as much as the previous year, when Americans made $122.3 billion in nontaxable gifts. The potential tax saved by all that last-minute activity in 2012 was easily north of $100 billion, and probably closer to $200 billion.

It turned out that the deadline was a false alarm. Obama and Congress reached a last-minute deal that kept the tax-free allowance above $5 million per donor, or $10 million per couple. That deal extended the new rules indefinitely. But we did not know that back in the fall of 2012.

Luckily for estate planning lawyers, financial advisers and their clients, the lame-duck session of Congress that began this week will be much less exciting, much less stressful and much less likely to keep us working through holidays.

This is not to say that this session is without significance, particularly because it is the last gasp for the Democrats who currently hold the majority in the Senate. For one, President Obama has several hundred appointments he would like to get confirmed, and Harry Reid’s Democrats are a more receptive audience than Mitch McConnell’s Republicans will be when they have the final say on such matters come January.

The fiscal drama this year, such as it is, will probably be confined to a low-profile extension of federal spending authority beyond the current December 11 deadline, which will prevent a partial government shutdown. While some in Congress may push for a full-scale omnibus spending bill, it seems more likely that the extension will simply push larger decision-making into next year, probably March. What no one expects is another government shutdown on December 11. Neither party has much to gain from it, so the stage is hardly set for extended partisan squabbling.

On the tax side, some expiring provisions are likely to be reinstated for this year. Advocates of greater online sales tax powers for states are going to push their cause in connection with the proposed permanent extension of the Internet Tax Freedom Act, which is set to expire next month. This longstanding and popular statute bars local taxes on Internet access. Supporters of the much more controversial Marketplace Fairness Act, which would give states broader power to collect tax on online sales, may try to hitch it to the older law’s extension. A fight may be brewing over this, but it is unlikely to keep anyone up nights in December.

Congress is also likely tackle dozens of lapsed tax breaks, including provisions that benefit small businesses, teachers, multinational banks and wind farmers, among others. These breaks could get retroactively reinstated for 2014, as well as extended into next year. None of these tax provisions are particularly controversial, and it would be unsurprising if Congress went so far as to make some of the extensions permanent.

Still, this is looking like a particularly lame version of a lame-duck Congress, apart from any fights over presidential appointments and perhaps any move by Obama to change immigration rules by executive order. There is nothing on the horizon that is going to keep estate planners from spending the holidays with their families rather than at the office. That should make for a happier new year, at least among the people I know.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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One Response to "A Lame Duck And A Big Giveaway"

  • Dave Wright
    November 14, 2014 - 12:03 pm

    Giving states broader power over business and individuals outside of their own state borders is top 10 worst ideas that have every come across the floor of Congress. How did this pass in the Senate??