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The New Tax Law – Part II

The new federal estate tax system signed into law by President Obama last December has an interesting and advantageous break for married couples. Starting this year, widows and widowers can add to their own estate tax exemption the unused exemption of their spouse. This “portability”provision together with an increase in the exemption to $5 million per person allows married couples together to transfer as much as $10 million tax free to their children or other heirs either through gifts or their estate plan.

As an example, suppose a couple named Ann and John have an estate worth $6 million with all of their assets titled jointly in their name, with right of survivorship. When John dies first, Ann owns the entire estate of $6 million. Under the old tax law, John’s exemption is wasted, since the outright bequest to Ann is not taxed regardless of what the federal estate tax is. With the new tax law, Ann can use her husband’s entire exemption if her executor makes the appropriate election and unless her assets exceed $10 million, there will be no federal estate tax due. In essence the “portability” aspect of the estate tax exemption between spouses allows a couple to do what an A/B trust will do, without the trust.

Interestingly, there are some states that continue to impose state estate taxes. New York and New Jersey are two states which have the estate tax. California and Florida do not.

The new federal estate tax law is scheduled to “sunset” after 2012. Thus unless Congress acts again within the next two years, the pre-2001 estate tax and gift tax will return. So stay tuned to see what happens in the future. In the meantime, you may want to take advantage of the estate planning opportunities available. The estate planning attorneys at Scott C. Soady, A Professional Corporation can assist you with an estate plan that will meet your needs.

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