The new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed by President Obama on December 17, 2010. Part of this new law sets the federal estate exemption amount at $5 million. This change is set to stay in effect until the end of 2012 unless an extension is enacted by Congress to continue such changes.
What are some of the estate planning issues we face under this new Act? The new law imposes a federal estate, gift, and generation skipping tax at a rate of 35% with a $5 million exemption ($10 million for a married couple under the “portability rule” which we will discuss in Part II of this blog. It also increases the exemption for lifetime gifts from, $1 million to $5 million. This increases the ability to pass substantial assets, its income and appreciation, to others free of federal estate and gift taxes. If you are considering making non-charitable gifts this year, consult us about how to structure your gifts to maximize tax savings.
The new law may also affect the type of trust that married couples need. In the past, A/B trusts, also called marital deduction trusts, or bypass trusts were estate planning tools that were necessary in order to maximize a federal estate tax exemption for each spouse. For couples with estates under $10 million, this may no longer be necessary. The new law is only in effect for two years however, so that may be a reason to still utilize these trusts. In addition there may be other reasons to use these types of trusts, depending on your net worth, family structure, and investment outlook.
The higher exemption of $5 million may also offer the opportunity to change or undo some prior estate plans that were formed in the past in order to pay estate taxes. Also business succession planning that was done under the prior tax law may no longer be necessary. We would be happy to help you sort out if and how the new tax law affects your estate planning documents. Call us for a complimentary consultaion.