Congress Finally Acts on Estate and Gift Tax

The tax billed passed by Congress in December contained some significant changes in the Federal Estate and Gift Tax laws. Although the Estate Tax ended for 2010, it was only a matter of time before Congress would restore the tax. For tax years 2011 and 2012, the Estate Tax was reinstated at a 35% rate with a $5 million exemption per person so that a husband and wife can effectively shelter $10 million from Federal Estate Tax.

The new law also created a new twist which provides portability of exemptions between spouses. For example, if the husband dies first and only needs to use $3 million of his $5 million exemption, the wife would be entitled to a $7 million dollar exemption. Once again, these changes are only temporary so Congress will have to revisit the issue prior to 2013 when the exemption is scheduled to be only $1 million and the maximum rate will increase to 55%. Most experts believe that Congress will continue with the current tax philosophy as long as the Congressional make-up doesn’t change significantly in 2012.

A significant change in the Federal Gift Tax laws has received less attention than the Estate Tax law changes but is equally important. In the past, the exemption for Gift Tax purposes was only $1 million. The new law increases the exemption to $5 million for 2011 and 2012. As a result, high net worth individuals can give away up to $10 million of assets without paying any Gift Tax. Since the future of this provision is uncertain, it makes sense, where appropriate, for high net worth individuals to make gifts, particularly of highly appreciating assets, to take advantage of this window of opportunity while it still exists.

All of these changes make it extremely important that you review your current estate plan, particularly if your plan includes a credit shelter trust to maximize the Federal exemptions, to make sure that your current estate planning documents include the appropriate funding language based upon these law changes. We would be glad to assist you with a review of your current estate plan.

Curtis & Curtis, P.C. is a full service law firm located in Jackson, Michigan providing superior legal services and advice to individuals, families and businesses throughout mid-Michigan since 1901.

This publication is provided for general informational purposes only and does not constitute formal legal or other professional advice. No attorney-client relationship is created with you when you read this information. The above information may be changed without notice and is not guaranteed to be complete, correct or up-to-date, and may not reflect the most current legal developments. If you have any questions or need assistance, please contact Curtis & Curtis, P.C.