When it comes to estate planning, we are currently experiencing a “perfect storm” situation that represents the best opportunity on record to save literally millions of dollars in ultimate estate taxes for American families, according to the author.
Three factors are combining to make the current, highly favorable environment: Interest rates remain at all-time lows; asset values remain depressed, especially in real estate, and the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 signed by President Obama in December 2010 allows for the shifting of assets on a scale never before seen in the 94 years of the modern estate tax regime. I will explain below the importance of this “perfect storm” but first a quick review of the tax relief act is in order. The act caps the estate tax rate at 35% and allows for an exemption from estate taxes of the first $5 million of estate value.
These rates and exemptions also apply to the generation skipping tax. This means that married couples with estates of less than $10 million will incur no estate taxes whatsoever. This compares to prior law in 2009 (before repeal in 2010), when the top estate tax rate was 45% and the exemption was $3.5 million. If the act had not become law, the rate would now be 55%, with an exemption of just $675,000. The new law will allow many families to escape the estate tax altogether or lower taxes significantly for those with estates greater than $5 million (or $10 million for married couples).
Another benefit of the new law is “portability” of the exemption. This allows a surviving spouse to utilize any unused exemption of the predeceased spouse. For example, if the husband predeceased his wife and had only $2 million of assets in his estate at the time, the surviving spouse will be able to use an $8 million exemption (her $5 million plus his unused $3 million). Read more . . .