Clawing Back at ClawbackClawing Back at Clawback

We’re all aware that lifetime taxable gifts of up to $5.12 million can be made through the end of 2012 without incurring any federal gift tax. But, there’s a debate raging over whether a so-called “clawback” tax could expose to estate tax gifts that were sheltered from gift tax by the $5.12 million applicable exclusion amount. A clawback tax could apply to the estates of those who die after 2012, if the estate and gift tax system reverts to the rules in effect before the Economic Growth and Tax Relief Reconciliation Act of 2001.¹   

Assuming there’s a potential clawback tax, it may be possible to turn that tax into an advantage by drafting an indemnification agreement that requires the gift recipient to pay the tax. As a result, the taxp...