Estate Planning Update
03/31/2011
Dear Clients and Colleagues:
Effective
Here are the major changes, which are currently effective for 2011 and 2012 only:
Change in Exemption Amounts. The federal exemptions for gift, estate and GST taxes are now each $5 million per individual for years 2011 and 2012. The estate and GST exemptions are increased from a $3.5 million level in 2009, while the gift tax exemption is increased from $1 million. The maximum gift, estate and GST tax rate for 2011 and 2012 is reduced from 55% to 35%.
Portability. Under the new concept of portability, the amount of estate tax exemption that is unused by the estate of a spouse can be transferred to the surviving spouse to increase his or her gift and estate exemption in 2011 and 2012. For example, if John Doe dies in 2011 and leaves $1 million to his children, his remaining exemption of $4 million can pass to his wife Jane Doe, leaving her with an exemption of $9 million, without the necessity of leaving assets in trust for her.
Inherited Assets. Inherited assets will continue to receive a step-up in basis to date of death value, while the basis of assets received by gift during the life of the donor will continue to be the donor's own cost basis in the gifted asset.
Reversion To Lower Exemption Amounts. These changes expire on
Though every client's situation is unique, here are some general guidelines regarding your planning and the new law:
Impact On Current Estate Plans. Most estate plans drafted within the last 10 years automatically take into account changes in the amount of the exemption, and are therefore generally sound. In the majority of cases, however, bequests in such plans are based on the amount of the exemption. Because the exemption has risen to the $5 million level for 2011 and 2012, those estate plans should be reviewed to ensure that they still reflect the client's intentions. For example, a plan that leaves the exempt amount of a deceased spouse to a non-marital/credit/bypass trust for the surviving spouse may now pass more assets to the trust than was expected when it was written, and more than necessary to reduce tax on the surviving spouse's estate. This can result in a surviving spouse having less control over assets than he or she could have had under the new law. An amendment to the trust in this situation can better align the plan with the increased exemption, and remain effective if the exemption sunsets in 2013. While the concept of portability will eliminate the need for a non-marital trust in some cases, it should not be relied upon until it is made permanent.
Significant Lifetime Gifting Opportunities. Lifetime gifting has always been a method to pass assets to children or grandchildren, outright or in trust, in order to remove the future appreciation of the assets from estate tax in the donor's estate. For persons wishing to make substantial gifts, the increase of the exemption from $1 million to $5 million for the next two years is significant and affords a time-limited opportunity to transfer assets to later generations without incurring adverse tax consequences. This includes gifts to grandchildren or more remote descendants, either outright or in trust. To protect against the exemptions reverting to $1 million in 2013, large gifts, whether to children or more remote descendants, should be made before
Summary. The changes in the tax law will have an impact on all estates; however, it is premature to re-write all estate plans until we know that these changes are permanent. For most clients, their Wills and trusts will accommodate the current estate tax changes without the need for revisions. Nevertheless, for many persons using trusts in their estate planning, revisions may be appropriate to add flexibility based on (1) the chance of deaths occurring before 2013 and (2) the possibility of Congress making the current exemptions permanent. We especially recommend that couples with combined estates over $3.5 million, as well as clients concerned about passing more assets than necessary to a credit shelter trust rather than to a surviving spouse outright, have their plans reviewed now.
Please contact the attorney responsible for your estate planning if you have questions which you would like to discuss.
Jeffrey W. Roberts, Esq.
Telephone (413) 732-2301
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Richard M. Gaberman, Esq.
Telephone (413) 732-2301
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Michael J. Simolo, Esq.
Telephone (413) 732-2301
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