The new federal tax law, enacted December 17, 2010, creates a few planning opportunities that should be considered before the end of this year. The new law has also changed exemptions and tax rates for gift tax and estate tax purposes starting in 2011. We will be sending an alert discussing these changes in early 2011.
- If you were planning on making year-end taxable gifts, it may be advisable to delay those gifts until January 2011. The delay would allow you to take advantage of the new $5 million gift tax exemption and to delay payment of tax on gifts in excess of that exemption for a year.
- Annual exclusion gifts — $13,000 per recipient per year from a single individual or $26,000 from a married couple who split gifts — are not affected by the new rules. If you have not yet made annual exclusion gifts in 2010, it remains a good idea to do so.
The Generation Skipping Tax (“GST”) exemption has been increased to $5 million, effective in 2010 as well as 2011 and 2012. The GST tax rate for 2010 only is zero percent.
- If your family has multi-generational trusts that are potentially subject to GST tax, the trustees may want to consider making distributions to younger generations (or to trusts for the benefit of the younger generations only) before the end of 2010 to take advantage of the zero percent rate.
- Examples include trusts that were funded from the proceeds of a Grantor Retained Annuity Trust (GRAT), Qualified Personal Residence Trust (QPRT) or from an estate that exceeded the then-available GST tax exemption.
- If you intend to make substantial gifts (generally in excess of $5 million) to grandchildren or to trusts for their benefit (i.e., generation skipping gifts) over your lifetime:
- Gifts up to the current $1 million gift tax exemption (or annual exclusion gifts) can be made to trusts for the benefit of grandchildren with no gift or GST tax, and without consuming any GST exemption.
- Larger generation-skipping gifts can be made with only one level of tax — a 35 percent gift tax — while preserving next year’s larger GST tax exemption for later use.
While the above techniques are useful only in relatively specialized situations, we want our clients to be aware of these opportunities that are available only until year end.
If you would like to discuss these opportunities, please contact your Bingham McCutchen estate planning attorney as soon as possible. Remember — there are only 10 “shopping days” left before year-end (eight shopping days if you exclude Christmas Eve and New Year’s Eve) — and these strategies take considerable time and effort to implement.
Please contact the following members of Bingham’s Estate Planning practice for more information:
Thomas E. Peckham, Practice Group Leader
Leila E. Dal Pos
M. Gordon Ehrlich
William D. Kirchick
Laura B. Lerner
Amy R. Lonergan
Lawrence I. Silverstein
David L. Silvian
Barbara Freedman Wand