Summary of The 2010 Tax Act

To summarize, the 2010 Tax Act makes significant estate and gift tax changes.  Almost every estate plan needs to be rewritten immediately.  The key points discussed above in the blog series include the following:

  • The estate tax exclusion amount increase to $5 million per person for 2010 through 2012.
  • The gift tax is reunified with the estate tax, and up to $5 million in lifetime gifts will be exempt (over and above the annual gift tax exclusion of $13,000 per donor for every donee each year).  Taxable gifts would be taxed at a top rate of 35 percent.  One would certainly have to make a very large gift to fall into the taxable range.
  • The maximum estate and gift tax rate is reduced from the 55 percent maximum rate under prior law to a maximum estate and gift tax rate of 35 percent for 2011 and 2012.
  • A “portability” provision is included, which allows surviving spouses to use any applicable exclusion amount that is not used by the first spouse to pass away.  This is not only true of very large estates, but also of those smaller estate plans that were drafted when the exemption was smaller and credit shelter trusts and outright bequests were drafted with maximum language.  The net result when such documents are interpreted under the new rules would be to pass entire estates into credit shelter trusts and not provide for other beneficiaries, perhaps not even for spouses.
  • The GST exemption amount is increased to $5 million for 2010 through 2012.
  • The Act sunsets at the end of 2012, thus making the foregoing changes temporary in nature.

As always, we recommend that clients review their estate plans periodically and/or whenever a significant life event occurs (e.g., birth of a child, death of a spouse, purchase of new home, etc.).

For clients with substantial amounts of wealth and with closely held businesses, we highly recommend that such clients consider using lifetime gifts to take advantage of the current $5 million lifetime gift tax applicable exclusion amount, which will expire absent further Congressional action at the end of 2012.

As more becomes known about this Act, we will be available to discuss it further.  If we can be of assistance to you in the area of income tax or estate/gift tax planning, or, if you have any questions or wish to discuss your estate plan in light of the Act, please do not hesitate to contact us.

Please call our office at (818) 501-5800 at your earliest convenience, and we will gladly schedule time to meet with you and review your estate planning documents.  In some cases, no changes will be required.  In others, we will recommend changes.  We cannot know, in advance, whether your documents will require changes to best take advantage of the current state of the estate tax law until we have a chance to review your documents with you.

Nonetheless, we strongly believe that it is important that your estate planning documents produce the result you want.

Start reading from the beginning of this blog series on the 2010 Tax Act:

Important Estate Tax Aspects of the 2010 Tax Act (the “Act”)

What’s NOT in The 2010 Tax Act

There are two key provisions that many commentators feared would be in the 2010 Tax Act, but which were not included in it.

Specifically, there have been several proposals to place limits on Grantor Retained Annuity Trusts (“GRATs”), which allow individuals to transfer wealth out of their estates with as little as a zero estate or gift tax cost that would have made GRATs less valuable from an estate planning perspective.  There have also been several proposals to limit valuation discounts in connection with certain estate planning techniques such as family limited partnerships. There were no such provisions included in the Act.  Therefore, these techniques continue to be available to move wealth to lower generations.

Temporary Relief Does Not Extend to Non-US Citizens Who Are Not Residents for Estate Tax Purposes

The Act reinstates federal estate taxes on United States-situs property of non-US citizens who are not residents.  The increase of the applicable exclusion amount to $5 million per person does not apply to non-US citizens who are not residents. US situs property exceeding $60,000 in value is currently subject to US estate taxes beginning at graduated marginal rates starting at 18 percent.  Accordingly, particular vigilance needs to be exercised in structuring the acquisition of US assets such as real property, so as to avoid imposition of US estate taxes at pre-2010 levels.

Contact our Estate Planning Lawyer in Los Angeles today to review your estate plan.

Continue to final post in blog series:

Summary of The 2010 Tax Act

Important Estate Tax Aspects of the 2010 Tax Act (the “Act”)

Was that the sound of another volcanic eruption from Eyjafjallajokull in Iceland?  Was it a lingering echo of vuvuzelas from the World Cup of 2010 in South Africa?  Or was it an enthusiastic cheer from the Bronx at the news that no estate tax would apply to the estate of billionaire George Steinbrenner?  No, that “thud” was the sound of Congress closing the book on its experiment with estate tax repeal.  The estate tax is back.

On December 17, 2010 President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”). The Act substantially modifies federal taxation of income, gifts and estates, which impacts estate planning for many of our clients, and presents significant estate planning opportunities.  The Act temporarily reinstates and modifies the estate and generation-skipping transfer (GST) taxes retroactive to the beginning of 2010, and modifies the gift tax beginning in 2011.  Importantly, while the new estate tax regime will be effective in 2010, estates of decedents dying in 2010 can elect out of the Act’s regime and use former 2010 estate tax law – a zero rate and modified carryover basis rules.

This blog series summarizes the Act’s key changes and provides you with our observations about the Act’s impact from an estate planning perspective.   Please note that there are several important changes made by the Act that this blog series does not summarize.

Continue reading blog series:

Why (almost) Every Estate Plan in the U.S. Needs to be Rewritten Immediately
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