On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”), which extends the Bush income tax cuts and sets forth the U.S. Estate, Gift and Generation-Skipping Transfer Tax laws for 2011 and 2012. The following is a brief summary of the transfer tax provisions of the Act as they may apply to your family:
- Estate Tax Exemption and Estate Tax Rate. The estate tax exemption amount for decedents dying in 2011 and 2012 is $5 million, and the maximum federal estate tax rate is 35%.
- Gift Tax Exemption and Gift Tax Rate. For gifts made in 2011 and 2012, there is an applicable lifetime gift tax exemption amount of $5 million per donor and a top gift tax rate of 35%. The "annual exclusion" for gift tax purposes remains at $13,000 per donor per donee for 2011 (the same level as it was for 2010).
- Generation-Skipping Transfer ("GST") Tax Exemption and GST Tax Rate. The GST tax exemption for GST transfers in 2011 and 2012 is $5 million, and the GST tax rate is 35%.
- Portability. Effective for estates of decedents dying after December 31, 2010, the Act allows the executor of a deceased spouse's estate to transfer any unused estate tax exemption to the surviving spouse. The estate tax exemption is therefore “portable” between spouses who die in 2011 and 2012. Prior to 2011 it was necessary to establish a “credit-shelter trust” to make use of both spouses’ estate tax exemptions. (Note, however, that the $5 million GST tax exemption is not portable between spouses.)
- Uncertainty after December 31, 2012. Unless Congress otherwise acts before December 31, 2012, the law will revert to 2001 levels on January 1, 2013, with a $1 million estate and gift tax exemption and a GST tax exemption (indexed for inflation) of approximately $1.4 million.
The increased estate tax exemption and “portability” are significant changes in federal estate tax law which may impact your estate plan. Please let us know if you would like us to review your wills and trust instruments in light of these important changes.
Moreover, new planning opportunities are also available as a result of the increased gift tax exemption available in 2011 and 2012. Please contact our Trusts & Estates Team if you wish to discuss the most effective gifting strategies.