Estate Taxes

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Burke/Triolo Productions

In 1789, Benjamin Franklin wrote, In this world nothing can be said to be certain, except death and taxes—a statement that remains easy to agree with. But when Congress agreed to disagree regarding this country’s estate tax in 2010, for the first time in decades, the U.S. went an entire year without a federal estate tax.

    Almost a decade before this interruption, Congress established an estate tax exemption of $1 million in 2001, in essence allowing a person upon death to leave up to $1 million without an estate tax, says Gary True, principal at Summers Compton Wells. “And then it gradually increased until 2009, when it was $3.5 million,” he recalls. “In 2010, there essentially wasn’t an estate tax because Congress let the estate tax expire. So for those billionaires who died in 2010, their families saved enormous amounts of money; for example, George Steinbrenner, who died last year.”

    At the end of 2010, Congress passed a new estate tax law, which went into effect on Jan. 1, 2011, allowing a person to leave up to $5 million without an estate tax, explains Gene Zafft, principal at Rosenblum, Goldenhersh, Silverstein & Zafft. “The new law applies to two years: 2011 and 2012,” Zafft says. “As before, there is no limit for whatever a person leaves to a surviving spouse, but now a couple can shield up to $10 million as they pass the money to their kids. Another big advantage to the new law was that the gift tax amount also was increased from $1 million to $5 million. And the advantage of making a gift prior to death is that the assets grow in value from the day it is given.”

    True adds that couples who have very large estates are making gifts up to $10 million. “The thought is if they give away the maximum now and the exemption goes back down, the government won’t come back and tax them on it.”

    Another significant change is an added feature called ‘portability,’ says Ron Rucker, principal at Carmody MacDonald. “If a person dies and doesn’t use up any of his or her exemption, the surviving spouse can use the remaining amount of the exemption that the first spouse didn’t use. In effect, many times this can mean doubling the exemption from $5 to $10 million.”

    The law is short-term, Zafft points out. “If Congress doesn’t do something affirmatively, then the law reverts back to 2001 when the exemptions were only $1 million—and portability also would be lost.”

    For now, Rucker tells his clients to be proactive when it comes to their estate management by taking a look at it every couple of years. “I think it’s best to keep the lines of communication open because we don’t know what Congress is going to do. We need to know what the new law is, so we can plan correctly for it. Who would have thought—in the United States—there wouldn’t be any estate tax for one year?”  LN