2010 NOW WHAT?
Estate Tax Planning in 2010 and Beyond
Phase out of the Federal Estate Tax
What a mess Congress has created!
We are now in a year where there is no federal estate tax - but hold the cheers. Congress has substituted another method of taxation that will collect more taxes from many of our clients and families than the estate tax. Additionally, as has been reported in the local and national press, these changes will, for some, greatly alter the planned for and anticipated distributions among family members and heirs.
A brief review of the law will help explain why this is so significant. The 2001 tax act,[ Economic Growth and Tax Reform Reconcilliation Act of 2001 EGTRRA] signed into law by President George W. Bush, gradually reduced the maximum rate of the federal estate tax (and the equally onerous generation-skipping transfer tax on transfers to grandchildren) from 55% to 45%. It also gradually increased the amount of property that you could pass free of federal estate tax from $675,000 per person in 2001 to $3.5 million per person in 2009. That means that with basic estate planning, a married couple could pass up to $7 million free of federal estate tax, if they both died in 2009. (See Applicable Exclusions Amount (Unified Credit))
EGTRRA was basically designed to provide significant tax relief, including “permanent” relief from the federal estate tax (with its then $675,000 exemption and maximum 55% tax rate). The new law steadily lowered the maximum estate tax and GSTT rate to 45%, while increasing the exemption amounts to $3.5 million in 2009 and eliminating federal estate tax and GSTT altogether in 2010. But because of a special Senate rule that limits budget deficits, EGTRRA was enacted with a “sunset” provision. Under this sunset provision, on January 1, 2011 the law will revert back to pre-EGTRRA law. This means that the federal estate and gift tax exemptions will be unified at $1 million (the unified credit was schedu
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