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:
The California Legal Blog 