As I’m sure almost everyone has heard by now, the 2010 Tax Relief Act was passed by Congress and signed into law by President Obama. To many it was surprising enough that they passed anything. And to see what they actually passed is . . . well, almost unbelievable from an estate planning attorney’s perspective. It’s definitely not something we saw coming. If you know me, you are familiar with my favorite phrase when it comes to estate planning law – “never a dull moment” – and this is no exception.
Here is a brief summary of the estate planning components of the new law:
- Originally there was no estate tax in 2010. Now there is a retroactive estate tax on amounts over $5.0 million per individual which will be taxed at a 35% rate. However, estates of individuals passing away in 2010 will get to choose between the retroactive tax or the “no tax” and it’s carryover basis regime that I previously wrote about here and here.
- The estate tax will be imposed on individual estates in excess of $5 million in 2011 and 2012 at a rate of 35%.
- The gift tax exemption will be $5 million. That’s right – MUCH higher than it has been or anyone anticipated it would be. This will allow for some incredible, once-in-a-lifetime opportunities to create a legacy that will last for generations to come.
- Portability is added. This is a new concept to many people (and many attorneys too!). For married couples, any unused portion of the estate tax exemption from the first spouse to die can be used as an added exemption when the second spouse passes. Watch out though, as there are certain procedures that must be followed when the first spouse passes for this to work.
- The generation skipping transfer tax exemption amount is increased to $5 million as well. I see exciting planning opportunities combining this with the gift tax exemption amount.
The critical part to this is IT ONLY LASTS FOR TWO YEARS! It seems that a lot of the popular media is glossing over that. Look at how close Congress came to letting the law revert back to 2001 law this time (hint: we were less than 15 days away from it!). Don’t count on them to keep fixing these “roll forwards” every time. This should be a big red flag to get your estate plan reviewed by an attorney who specializes in estate planning. And if you don’t have a plan, make sure you work with a lawyer who can provide a plan with the flexibility needed to handle these changes and who will keep the lines of communication open so your plan doesn’t go “stale.”
Quite honestly my head is spinning with added possibilities that families can achieve because of this legislation. Stay tuned as I will be sharing the ideas as quick as I can come up with them! And don’t forget to call us at 616-827-7596 to help your family have the added peace of mind of knowing YOUR goals and values, not the Government’s goals, will be passed on to your family if something happens to you.
Michael Lichterman is an estate planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for finances – it’s about who your are and what’s important to you. He focuses on planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned business succession and pet planning – and he is privileged to do so from a Christian perspective. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.