Preserve Your Legacy

Estate Planning | Elder Law | Special Needs Planning


Legislation Reduces Estate Tax

Estate planning involves financial projections, and this can only be done with a reasonable modicum of accuracy when there is some kind of consistency within the numerical pattering you are working with. However, the recent wild swings in the estate tax parameters year to year has made estate planning quite challenging because what makes sense on December 31st of a given year may not be appropriate the next day. In 2008 the estate tax exclusion was $2 million; in 2009 it was $3.5 million; in 2010 the tax was repealed entirely; and throughout almost all of 2010 the law stated that the estate tax exclusion in 2011 would be $1 million.

There are many different permutations of this hodgepodge that you can highlight, but for instance, if an individual passed away with assets of $3 million in 2008 when the top rate was 45% and the exclusion was $2 million his or her heirs would owe the IRS $450,000. If this person held on until 2009 or 2010, no estate tax would be due. But under the law as it stood until December of 2010, this individual’s $3 million estate would have been presented with a $1.1 million tax bill if he or she died in 2011.

Thankfully, for at least two years we can enjoy some estate tax relief. A new bill that would extend the Bush era tax cuts had been gaining momentum since the midterm elections, and it ultimately passed though Congress and was signed into law by the President on December 17th. In addition to extending these cuts the new law is reducing Social Security payroll taxes by 2%, so the average American will see a little extra fluff in his or her paycheck.

As for the estate tax, the exclusion has been raised from the $1 million that was on tap for 2011 to $5 million for individuals and $10 million for couples. The rate of taxation has been reduced as well, dropping from 55% to 35% on any portion of an estate that exceeds the exclusion.