The unthinkable has happened. At the end of 2009, Congress failed to reach a compromise on extending the federal estate tax and the generation-skipping transfer (GST) tax. The result is that these taxes are “repealed” for one year, and the gift tax, while still in place, is reduced for one year. Here is a quick summary of the 2010 tax situation, subject to the warning that Congress could still make changes that would be effective retroactively:
Unless Congress makes changes, both the estate and GST taxes come back with a vengeance in 2011, with a $1 million estate and GST tax exemption (with the GST tax exemption indexed for inflation) and top estate, gift and GST tax rates of 55%.Estate Plan Review
If you die while there is no estate tax in effect, assets could pass under your will or trust in ways that you did not intend — and do not want.
Some documents contain formulas that change the allocation of property between the recipients dramatically if there is no federal estate tax or GST tax, and those dramatic changes may not be consistent with your intentions.
Allocation of assets between spouses may also need to be reviewed in light of the one-year repeal of the automatic “step-up” of tax basis on death and the substitution of “carryover” basis rules.
If you have any doubts or questions about your estate plan, you should contact us to schedule a review. You may be due for one anyway as we generally recommend a review every three to five years, or sooner if there are changes in family or financial circumstances.
There are especially strong reasons to call us if:
The current “repeal” year presents some estate planning opportunities. However, given the current uncertain environment you should be sure to consult closely with your estate planning attorney before taking action:
The current economic environment also may present excellent gifting opportunities. Some of the positive factors are:
Many of our clients have successfully used the current environment to make low- or no-cost gifts to family members, other beneficiaries and trusts, and to make tax-advantaged gifts to charities as well.
2010 is the most challenging year for estate planning in at least the last 60 years! We would be glad to help you sort out the implications of the topics discussed above. It is important to keep in mind that, at least under current law, the federal estate tax is scheduled to be reinstated starting January 1, 2011. In this case, most problems of interpretation would vanish, although taxes would also increase. It is also possible, and perhaps likely, that Congress will reach a compromise and will re-enact a federal estate tax to be effective at some point during 2010. As a result, each client must consider his or her own situation to determine whether the costs of revising an estate plan outweigh the potential benefits. Upon request, we would be glad to help in this analysis.
Cartoon (C) 2010 Arnie Glick, firstname.lastname@example.org
Please contact the following members of Bingham’s Estate Planning practice for more information:
This article was originally published by Bingham McCutchen LLP.