2011 Estate and Gift Tax Update

2011 Estate Tax Update
In December of 2010,  President Obama has reached a deal with Republicans on the status of the estate tax for 2011 and 2012.  The highlights of the bill include

  • The estate tax exemption for individuals is now 5 million dollars.  This is up from 3.5 million in 2009 and $600,000 in 2000
  • The lifetime gift tax exemption is now 5 million dollars.  This is up from 1 million dollars in 2010
  • The estate and gift tax rate is now 35%.  Thus any estates or gifts larger than 5 million dollars will be taxed at a rate of 35% for every dollar above the 5 million dollar threshold
  • Portability of the estate tax exemption: Married couples may not need to split up their estate when one spouse passes in order to take advantage of both spouses estate tax exemption.  In other words if you and your spouse are worth ten milllion dollars, the surviving spouse can still directly inherit the deceased spouses share of the estate without having to worry about not taking advantage of the deceased spouses’s exemption.  When the surviving spouse passes, their estate can now not only use the current exemption but also the unused portion of the estate tax exemption not used by the deceased spouse to whom they were last married.
  • This new estate tax law will expire at the end of 2012 unless the government renews it and if they fail to do so, we will go back to the 1 million dollar exemption.

While I would not expect the estate tax exemption to fall after 2012, no one has an idea exactly what will happen after 2012.  With the rising deficit and sluggish economy it is possible that the estate tax exemption could fall after 2013 although it is more likely that they would increase the tax rate rather than reduce the exemption. With that in mind, it is still imperative that married couples make sure that their living trust is set up in such a way to minimize the impact of the estate tax regardless of what the exemption amount turns out to be.  In addition, those couples who set up their trusts when the estate tax exemption was $600,000 should also have their trusts reviewed as they may contain cumbersome provisions that are no longer necessary.

Brian Chew, the managing partner of OC Wills & Trust Attorneys, has extensive experience in the areas of estate planning, asset protection planning, business succession planning, long-term care planning, and veterans’ benefits. By devoting his practice to estate planning matters, he has founded a firm that strives to provide exceptional service to their clients by working closely with individuals and their families to create comprehensive and customized estate plans. For the past twenty five years, Brian has served thousands of clients in the matters of estate planning, wills and trusts. If you have any questions about this article, you can reach Brian Chew here.