Dear Friends and Clients:
Welcome to 2011. We hope the New Year is a happy one for you and your family. With a new year comes some new legal opportunities that we wanted you to be aware of.
ESTATE TAX CHANGES:
As we advised in our previous newsletters, the "Bush Estate Tax Cuts" were scheduled to lapse at the end of 2010. Many of you called us concerned about the consequences of the expiration. Congress did act, and on December 17, 2010, the President signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. In summary, the Act did the following:
1. Extended the Estate Tax Credit through 2013, subject to many significant changes. For 2011 and 2012 the federal estate tax exemption rate will be $5 million, and the top tax rate will be 35 percent. Of particular interest, the new Act introduced "portability" of any unused exemption in the estate of the first spouse to die. Under the old law, the full benefit of the $7 million exemption could only be achieved between married spouses if each spouse had at least $3.5 million in their name, because the unused exempt amount stayed in the first estate and did not pass to the surviving spouse. The new Act gives the unused portion of the estate exemption of the first spouse to the surviving spouse. Thus, it is not necessary to split assets between spouses in order to take full advantage of the estate tax exemption. The portability only applies if the survivor does not remarry, as the Act provides that the surviving spouse gets the unused exemption of the "last spouse". Portability only applies to the estate and gift tax, not the Generation Skipping Tax (GST).
2. Changed the exemption for Gift Tax for two years. For 2011 and 2012, the Gift Tax Exemption has increased to $5 million.
3. Increased the exemption for the Generation Skipping Tax. The GST was re-enacted retroactive to January 1, 2010. For transfer in 2010, the rate of tax would be zero. For 2011 and 2012, the federal estate tax exemption rate will be $5 million. This provides a unique opportunity for gifts made to grandchildren in 2010 to elect out of the automatic application of the GST exemption, thereby preserving the exemption for use in the future.
Please call us to discuss how these new laws may impact your estate plan.
ROBSHAW & ASSOCIATES, P.C.
JOHN P. ROBSHAW, JR. and JEFFREY F. VOELKL
