If you think back to the end of the 2010 calendar year you’ll recall that the news in the financial sector revolved around the impending expiration of the Bush era tax cuts. This is an issue that affected Americans on every level, but it also had a very profound impact on estate planning. If the Economic Growth and Tax Relief Reconciliation Act of 2001 would have expired with no new legislation to replace it, the estate tax exclusion would have been reduced to $1 million, and the rate of the tax would have returned to the 2001 level of 55%.
As a result of the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, we now have a $5 million per person exclusion and a 35% maximum estate tax rate. Due to the passage of this legislation the gift tax and the generation-skipping transfer tax are also carrying a $5 million exemption and a 35% tax rate on transfers above that amount. Another change that was of interest to estate planning attorneys involved the portability of the estate tax exclusion. Previous to the passage of this new measure, when you died, your estate tax exclusion died along with you. But now your surviving spouse would be able to utilize the balance of your unused exemption.
All of the above alterations to the estate tax parameters would be considered to be steps in the right direction by most estate planning lawyers, but there’s one important fact to keep in mind: these changes are not permanent.
Just as the Bush tax cuts were going to sunset at the end of 2010, this tax measure will sunset at the end of 2012. Should this take place, we would once more be working with a $1 million exclusion and a 55% maximum rate of taxation. With this in mind you may want to consult with your estate planning attorney with regard to the best way to proceed going forward.