Congress has finally made a decision on the tax bill and here is how it will affect your Estate Planning. According to the Wall Street Journal, for 2011 and 2012, the top estate-tax rate falls to 35% and the exemption rises to $5 million an individual. The tax bill also allows executors of 2010 estates to elect whether to use 2010 rules or 2011 rules. The choice will help heirs who would pay more as a result of the lapse of the estate tax in 2010 and a corresponding rise in capital-gains taxes. Also for the first time, estate, gift and generation-skipping taxes will be "unified" so that one $5 million exemption per individual applies to all three. This will make it easier for grandparents to make gifts during their life to grandchildren. In 2013, the provisions "sunset," and if Congress doesn't act, the 2013 top rate would again be 55% and the exemption $1 million per individual. Each partner of a married couple has always been allowed a full individual estate-tax exemption, but under earlier law married couples often lost the value of one exemption unless they got good legal advice. The loss occurred if the first-to-die spouse left everything to the other without the proper trusts in place. The tax bill has a "portable" exemption that allows for easier post-death planning. After the death of the first spouse, any unused portion of the spouse's $5 million exemption may go to the surviving spouse's future estate.
What does this mean for you? If you have a trust, great...keep it in place. Remember, the new law is only a temporary two-year fix. In 2013 we will be facing the same 55% tax and $1 million exemption. Additionally, remember that reducing the possibility of estate tax is only one benefit of a trust. There are many other benefits to having a trust such as protecting your beneficiary's inheritances, avoiding probate, and naming guardians and conservators for yourself.
If you have any questions about how the new tax bill will affect you, please feel free to give our office a call. We are here to assist you and your family in all stages of your life.
-Jennifer Mahoney
