You made large taxable gifts in 2010

Without Congressional action, expiring tax law would have resulted in the revival of the 55% gift tax rate (while retaining the $1 million lifetime exemption) for 2011, prompting some taxpayers to accelerate gifts into 2010 to take advantage of the 35% rate. It wasn't until mid-December that Congress passed tax legislation preserving the 35% gift tax rate and increasing the gift tax exemption to $5 million for 2011 and 2012.

imageSuppose you made a $1 million gift on Dec. 1, 2010. Ignoring the annual gift tax exclusion - and assuming that you'd already used up your $1 million exemption you'd owe $350,000 in gift tax. If you'd made the same gift one month later (on Jan. 1, 2011) it would have been tax-free.

Can you "undo" the gift? Possibly. One potential option is to attempt to rescind the gift. Whether this strategy is worth the effort depends on your state's rescission laws and how they're interpreted by the IRS and the courts.

Another option is for the recipient to return the gift to you using a qualified disclaimer. This may be difficult to achieve, however, because qualified disclaimers are invalid if the recipient has "accepted" the disclaimed property or any of its benefits. Examples of acts that may indicate acceptance include using the property, accepting income generated by the property (such as dividends, interest or rents) or pledging the property as collateral. Merely taking delivery of title, however, doesn't, by itself, indicate acceptance. Also, keep in mind that a disclaimer must be filed within nine months of receiving the gift.

If you made a large taxable gift last year that you now regret, consult your estate planning advisor to evaluate the possibility of undoing the gift.
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