The timing of when to transfer ownership of a family business to the next generation may become even more critical over the next year. As it stands now, the lifetime gift tax exemption (an important tool for succession planning) stands at $5 million - the highest it has ever been. This means more value can be transferred without paying taxes.

But the current rules expire at the end of 2012 and nobody knows what will happen after that. President Obama has a proposal on the table to reduce the gift tax exemption to $3.5 million and increase the gift tax rate from 35% to 45%. There is also uncertainty about the continued availability of succession strategies including valuation discounts, grantor retained annuity trusts (GRATs) and the portability of the estate tax exemption.

All this is on top of proposals to raise the capital gains rate.  Starting in 2013, high-income individuals may have to pay an additional 3.8% on capital gains and other investment income.

Because of the uncertainty surrounding these issues, it is important to examine your current succession plan (or to develop a succession plan if none exists) in order to take advantage of currently available gifting and planning strategies. 

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If you have any questions regarding this issue, please contact the DZH Phillips Tax Department at (415) 781-2500 or email cpas@dzhphillips.com.