2010 Estate And Gift Tax Changes


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Description of estate and gift tax changes in the 2010 Tax Relief Act by Rob LeChevallier

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2010 Estate And Gift Tax Changes

  1. 1. Estate and Gift Tax Changes 2010 Tax Relief Act By: Rob Le Chevallier Attorney-at-law
  2. 2. Overview <ul><li>Reduces Estate, Gift and Generation Skipping Taxes for 2011and 2012. </li></ul><ul><li>Preserves Estate Tax Repeal for 2010. </li></ul><ul><li>Revives Estate Tax for 2010 with $5 million exemption. </li></ul><ul><li>Reinstates stepped-up basis to date of death values. </li></ul><ul><li>Allows portability of exemptions 2011-12. </li></ul>
  3. 3. New Lower Rates <ul><li>2009 federal exemption was $3.5 million with top 45% rate. </li></ul><ul><li>2010-2012 $5 million and top 35% rate with inflation adjustment starting 2012. </li></ul><ul><li>2013 and thereafter ???? If Congress does not extend, reverts to $1.0 million federal exemption and top 55% rate. </li></ul>
  4. 4. Special Rules for 2010 <ul><li>Estates of persons dying in 2010 have a choice: </li></ul><ul><li>Estate tax exemption of $5 million and step-up in basis in assets. </li></ul><ul><li>No estate tax and modified carryover basis ($3.0 million to spouse and $1.3 million to other heirs). </li></ul><ul><li>Default is estate tax unless no estate tax elected on Form 706. </li></ul>
  5. 5. Gift Tax Changes <ul><li>2009 gift tax on excess over lifetime gifts of $1.0 million plus annual gift exemption of $13,000 per person </li></ul><ul><li>2010 same exemptions except gift tax rate was reduced to 35% </li></ul><ul><li>2011-2012 $5 million unified credit (either lifetime or death) with 35% tax rate plus annual gift exemption) </li></ul>
  6. 6. Gifting Opportunity <ul><li>The new law creates a gifting opportunity for the next two years using the $5 million exemption </li></ul><ul><li>Valuable for business and real estate owners that want to make gifts of stock or property while values are lower. </li></ul><ul><li>Future appreciation will be in estate of children rather than parents or grandparents. </li></ul>
  7. 7. GST Changes <ul><li>GST is an additional tax on gifts or bequests to grandchildren (or anyone 37.5 years younger) when their parents are still alive. </li></ul><ul><li>Concept is IRS would otherwise collect estate tax on death of children. </li></ul><ul><li>Same rate as the estate tax </li></ul><ul><li>Lowers GST taxes by increasing exemption to $5 million and 35% rate. </li></ul>
  8. 8. New Portability Feature <ul><li>Allows last surviving spouse to use unused exemption of spouse who dies after 2010 and before 2013. </li></ul><ul><li>Effectively allows $10 million to be passed to children or grandchildren. </li></ul><ul><li>If made permanent may eliminate need for tax planning credit shelter trusts. </li></ul>
  9. 9. More on Portability <ul><li>If wealthy spouse remarries you lose unused exemption of deceased spouse. </li></ul><ul><li>Zsa Zsa Gabor –under new estate tax scheme she should marry for love first, wealth second and a poor spouse third! </li></ul>
  10. 10. Advantages of Retaining Credit Shelter Trust <ul><li>Trust is irrevocable at first death. </li></ul><ul><li>Asset protection in event of future divorce or financial set-back. </li></ul><ul><li>Maintains distributions to heirs agreed upon by spouses while both alive. </li></ul><ul><li>Preserves estate tax exemption of first spouse to pass away. </li></ul><ul><li>Not dependent on what happens in 2013. </li></ul>
  11. 11. Disadvantages of Credit Shelter Trust <ul><li>Irrevocability may limit future flexibility unless surviving spouse has limited power of appointment. </li></ul><ul><li>More trusts to administer after death of first spouse. </li></ul><ul><li>Higher legal and accounting expenses. </li></ul><ul><li>May be unnecessary for smaller estates if portability becomes permanent. </li></ul>
  12. 12. Disclaimer Trusts <ul><li>If new law is made permanent more clients will use disclaimer trusts. </li></ul><ul><li>All assets given to surviving spouse. </li></ul><ul><li>Surviving spouse must disclaim in writing within 9 months of death and before spouse takes benefit of assets. </li></ul><ul><li>Assets disclaimed go to credit shelter trust with spouse as trustee. </li></ul>
  13. 13. Conclusion <ul><li>New law will benefit most estates by reducing federal estate taxes. </li></ul><ul><li>Does not affect state inheritance taxes so we still need to do tax planning. </li></ul><ul><li>Take advantage of gifting opportunity. </li></ul><ul><li>Consider both credit shelter trusts and disclaimer trusts when revising your estate plan. </li></ul>