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The New Federal Estate and Gift Tax: Good for Two Years.
Welcome to a two-year window of giving opportunity. The estate and gift tax lifetime exemption is set at $5
million per person. The generation skipping transfer (GST) tax exemption is also set at $5 million.
The future of the federal estate tax was the subject of the June, 2009,
Estate Planning column in the SIOR Professional Report. The estate
tax was set to expire on December 31, 2009. The pundits agreed:
Congress sensibly would enact a “temporary fix” to extend the estate
tax at the 2009 rate of 45 percent and exemption of $3.5 million.
But Congress did nothing—nothing, that is, until the third week
of December of 2010.
And then Congress surprised everyone—pundits, in particular—by
doing a lot. The 2010 Tax Act, which President Obama signed on
December 17, provides the most generous estate and gift tax rules
ever. But they are good for only two years, which sets the stage in
2012 for Act II of the federal estate tax drama.
Very wealthy individuals with perfect timing possibly saved
mega-millions by dying prior to December 17. George Steinbrenner,
the owner of the Yankees, died in July of 2010 when there was no
federal estate tax. Forbes estimated his estate was worth $1.1 billion. If he had died in 2009, his estate potentially was exposed to tax
of up to $500 million.
The 2010 Tax Act applies retroactively to persons who died in
2010. However, the executors of the estates of 2010 decedents may
elect to have the prior law apply instead of the new estate tax. If
this election is made, there is no estate tax, but appreciated assets
owned by the decedent will receive only a modified carryover basis
of $1.3 million for non-spousal beneficiaries and $3 million for
spousal beneficiaries. For some estates, extensive analysis is needed
to decide whether to make the election.
Welcome to a two-year window of giving opportunity. The estate
and gift tax lifetime exemption is set at $5 million per person. The
generation skipping transfer (GST) tax exemption is also set at $5
From 2001-2010 the lifetime exemption amount for the federal
gift tax was $1 million. The Tax Act boosts this to $5 million--but
only for two years.
For January 1, 2011 through December 31, 2012, the highest rate
for estate, gift and generation skipping taxes is 35 percent, a historic
low. Compare this to the 2001 top rate of 55 percent. But if Congress
fails to extend the 35 percent rate, the 2001 rate of 55 percent takes
effect as of January 1, 2013.
And what about the $5 million exemption? Gone with the wind,
if Congress fails to extend it. The 2001 exemption of $1 million will
take effect on January 1, 2013.
There is more, much more.
The Tax Act introduced for the first time the concept of “
portability.” Any of the exemption unused upon the death of the first spouse
is generally available for use by the surviving spouse, in addition to
the up to $5 million exemption that belongs to the surviving spouse.
Certain tax elections must be made on the federal estate tax return
for the surviving spouse to take advantage of this potential to shelter
up to $10 million. “Portability” only applies to estate and gift tax
exemptions, not to the GST tax exemption.
One prominent advisor wrote: “The case for making significant
wealth transfer between January 1, 2011 and December 31, 2012 is
extraordinarily compelling.” Carpe diem, but first arrange for an in-depth review with your estate planning counsel.
Caveat: This article is not intended, nor is it provided, and
should not be regarded as specific legal advice but, rather,
only as a general discussion of concepts and principles for
possible plans. Please consult your attorney before utilizing
any techniques stated herein. This material has not addressed
all issues, principles, exceptions, and exclusions that may apply to a